Release Date: September 26, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Brickworks Ltd (ASX:BKW, Financial) achieved a 56% decrease in carbon emissions in Australia compared to FY26, supported by product redesign and increased use of recycled materials.
- EBITDA increased across building products operations in both Australia and North America.
- The company declared a dividend, maintaining or increasing dividends for the last 48 years.
- Strong demand in the property division led to a 9% increase in rental income to $163 million.
- Investments delivered an underlying contribution of $137 million for the year, with a combined market value of $3.383 billion at the end of July, up by 8%.
Negative Points
- Brickworks Ltd (ASX:BKW) recorded a statutory loss of $119 million for the year due to significant non-cash devaluations and impairments.
- Underlying NPAT and EBITDA both declined significantly to $61 million and $157 million respectively.
- Net debt increased by 20% to $682 million, with gearing increasing slightly.
- The company faced a decline in building activity, resulting in a 12% decline in revenue from building products in Australia.
- Non-cash impairment of $135 million net of tax impacted the carrying value of intangibles, right of use assets, and plant and equipment.
Q & A Highlights
Q: Just looking at your development profits, it's been fairly consistent over the past few years at $75 million to $78 million. Just wondering if you can give us a steer as to how we should be thinking about the contribution likely in FY25 and going forward.
A: Really the development cost and profit is not as a regular thing why the range is on. So it just depends on how many developments we've actually got on reaching practical completion at the time. And the good news is that we have where we're finishing up on our Oakdale West, but we're rolling into our Oakdale East. So for the next at least four years, we're expecting that should be development profit coming through from that some of that development.
Q: In terms of North America, may I comment that some single-family is not a core market for the North American business. Do you see this as area of growth opportunity for the business?
A: Yeah. I mean, the single family and most of the brick consumption for single-family is down south. I mean, the American market, whether it's on average is about 8 billion bricks. The 6 billion bricks are consumed in the South and most of those bricks go into housing. And as you're aware, we're right across the Midwest, the Northeast and the mid-Atlantic areas where bricks is traditionally not used as much in housing and in fact at our plants to our plants only in one [Dell] and a lot of landfill in Virginia are actually geared for housing that low cost plants. So where in the architectural premium space and we demand much higher margins and they get down south. But that being said, you know when the market goes above 300,000 starts is amazing in Texas alone. There's not enough supply that we can start supplying out of our plants in the Midwest is basically out of out of Iowa as a huge opportunity for us. If we are looking at further acquisitions would have been in certainly you'd look to leverage value and get into the single-family space.
Q: Can you give us a steer on your expectations for decrease in FY25 flag?
A: We're certainly looking to add some focus on cash generation over the certainly over the bottom of them obviously expected. That's like another spill probably around where depreciation and amortization, $40 million this year. And so that's sort of am I would say that we that we certainly through that level and to target to drive our minds is to hold it where it is. And so I'm probably stay fairly steady and that and obviously read them over the next six to 12 months about a third of our debt is fee and expected to stay fairly steady.
Q: Can you talk about how you think cap rates and values might move through FY25?
A: Yes. So we're expecting capitalization rates to stabilize really at the current level. We believe that we've got on the left at the right level at the at the moment, which is the 5.2 is our average on CapEx. And as we said in the presentation, and we actually saw the cap rates on stabilized on quite well, only softened sort of quite slightly and as you said, that the on the rental growth actually came on through to be able to one two to keep the asset value some high.
Q: Is there a chance of an expanded investment division going forward or is it likely to stay as the current investments in Soul Patts and FBR?
A: Well, yeah, I don't think you going to see any radical shift in strategy from us. We've got the four pillars to the business. We've got our investment arm, we've got our property arm, we've got North America, and we've got Australia. Surely, we'll continue always to look at opportunities. We're a very innovative company. But at this point in time, there's no radical shift in our stretch [whole strategy].
Q: Why did we lose money on the M7 development?
A: Yeah, I mean, I think two points there, one, over the full life of that development, we made substantial profit off that investment. I think $150 million over the term. We had it from when we originally completed it to when we sold it. Look, we certainly sold that in the first half for a very small EBIT loss of $16 million after tax basis, it was actually profitable. It allows that we used some capital losses and release some tax liabilities. But importantly, we were able to execute it quickly, get the cash in, to provide us a bit of a buffer through the bottom of the cycle. So while it was a very small EBIT loss on it, it also reflected where valuations were moving at the time in the market. So, it wasn't subject to an asset write down or, cap rate expansion at the half like the rest of the assets were. So, we were fundamentally sold at that market.
Q: How profitable will it be to ship bricks from the US and sell to the UK and what are the essentially I mean, that was a great.
A: So the deal we start with mobility and they're listed on the exchange in London where the biggest reseller of bricks into the UK market. The UK market is about [$300 million] sorry, it's about 3 billion bricks. This particular company sells $600 million of the 3 billion brick further, very, very large player and they don't manufacture over there and they're interested in bringing rigs into the country that they no longer make in the UK. So there are premium style rig and we were able to strike a deal with bookability. The name is for 10 million bricks per year for 10 years, and that effectively underwritten the investment for that $15 million into a plant that we bought at Belden in Maryland to bring that back to life. And we're now up to about half the output coming out of that plant with a view to go to Phillip within the next few months. Really there is some good profit in the product going to the UK but it's only a third of the output model that allows us then to do is make the balance for the local market. And that in turn will we will be very profitable. So all up a good deal. I would love to take up a factory in commission and factory when you've got sort of a third of the output sulfur for a decade or so. I'm excited about that. And by the way, that's just one factory that the applicability of buying from DISH has another two factories in Pennsylvania, one in Somerville and one in Pittsburgh, and they're taking premium product from those factories as well. And we've probably shipped about three or 400,000 bricks in the course of the last two months.
Q: Can the dividend be evened up in future years?
A: I think that's certainly a historical approach that we've taken. And I think as we get out and cash positions in a different place and want to have
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
