Australia-based brick manufacturer, Brickworks, is preparing for the potential challenges and slowdown in building-products demand in the coming year, according to Managing Director Lindsay Partridge. In an interview, Partridge emphasized the company's focus on maintenance and operational efficiency, while expressing concerns about high electricity and fuel prices. Despite the uncertain market conditions, Brickworks remains committed to its shareholders and has no intentions of reducing payouts.
Maintenance and Operational Preparedness
With uncertainties surrounding the extent of the economic downturn in the second half of the year, Brickworks intends to strategically take some of its plants offline for necessary maintenance work. This proactive approach ensures the company is ready to capitalize on the subsequent boom expected within the next five to ten years. The upcoming year will also witness commissioning of new facilities and the finalization of the recent rationalization program in North America, bringing down the number of operating brick plants from 16 to seven. Partridge reassured that there are no further plans to reduce plant numbers in this region.
Protecting Margins and Pricing Adjustments
To safeguard its margins, Brickworks plans to adjust product prices where necessary. In fiscal 2023, the company had already implemented double-digit percentage increases and intends to continue this strategy as required.
Resilient Building-Products Markets
Despite expecting a downturn next year, Partridge admitted his surprise at the resilience displayed by the building-products markets in Australia and the U.S. It is worth noting that labor markets in both regions have improved, although some tightness remains. Considering labor as one of the biggest costs for the company, this improvement is significant.
Potential Headwinds: Electricity and Fuel Costs
Partridge identified high electricity and fuel prices as potential challenges ahead. On Wednesday, U.S. crude oil futures reached their peak for the year, underscoring the rising costs in this area. Brickworks will closely monitor these factors to adapt its strategies accordingly.
Amidst the uncertainties, Brickworks remains committed to navigating the challenges and positioning itself for future growth without compromising its dedication to shareholders.
Brickworks Faces Concerns over Rising Costs
Brickworks, an Australian building-products company, has expressed concerns about the increasing costs of electricity and diesel, which could impact its operations. While the company remains fortunate with its gas contracts, it acknowledges its vulnerability to these cost pressures.
Despite potential market downturns, Brickworks is committed to maintaining or increasing its dividend. In fact, the company declared a final dividend of 42 Australian cents per share, marking its tenth consecutive increase. This demonstrates its confidence in the overall strength of its business, which extends beyond building products into industrial property and other investments.
To ensure consistent dividend payments, Brickworks will prioritize reducing capital works or acquisitions during periods of weak earnings in its building-products business. This approach has proven effective for the company, as it has not cut its dividend in the past 47 years.
During its recent annual reporting, Brickworks posted an underlying profit of approximately A$508 million—a 32% decline compared to the previous year. It also reported a net profit of around A$395 million—a 54% decrease. These figures caused the company's stock to fall by 7% in early afternoon trading.
However, Brickworks' Managing Director, Partridge, believes that investors are overreacting. He emphasized the positive aspects of the company's performance, highlighting a significant increase in assets from its property trusts and its stake in investment firm Washington H. Soul Pattinson (WHSP). Partridge added that last year's exceptional results, driven by WHSP's takeover of Milton, should not be expected to be replicated in the short term.
In summary, while Brickworks faces challenges related to rising costs and a decline in profits, it remains optimistic about its long-term prospects. The company's diverse investments and commitment to maintaining dividends provide a strong foundation for future growth.