And as analysts downgrade US and Australian housing industry forecasts consider these comments from Brickworks CEO, Lindsay Partridge, at a media briefing in Sydney yesterday.
He told the media there was no recovery in sight the NSW building market.
“In most areas, there has been a 25 per cent downturn, but in NSW that downturn has been 40 per cent,” he said.
“I would hope NSW will fall no further and it’s hard to imagine it would. But this downturn has no end in sight.”
Mr Partridge said a shortage of affordable land and a flow of investors out the Sydney market when the government introduced a vendor tax had created the downturn.
The downturn in NSW had lasted 40 months, which was the longest since World War II, a point made in a presentation to analysts.
The company said that NSW used to account for 33 per cent of Brickworks’ market; it now is 24 per cent with Western Australia the largest market with 29 per cent, followed by Victoria with 25 per cent.
It was a gloomy summing up and makes a mockery of those analysts and companies who have been seeing an upturn around the corner in NSW for the past year.
But the poor outlook for NSW didn’t have too much impact on the company’s interim result.
Brickworks (58.9 per cent owned by investment company Washington H Soul Pattinson Ltd), said first half net profit fell 20 per cent to $36.7 million, not because of the housing problems but because of higher tax expenses.
Earnings before interest and tax (EBIT) eased just 3.6 per cent to $57.3 million and the building products EBIT rose 5.2 per cent to $33.2 million, which the company singled out as a strong performance given the problems in NSW.
Brickworks said it saw residential dwelling starts falling by 0.6 per cent in 2006-07 to around 150,000, and the company “does not anticipate any improvement in housing starts on the east coast until interest rates start falling and affordability and land supply, particularly in Sydney, improves.”
Brickworks management said that it was investigating ways to maximise future profits from land and building products by looking at plant consolidation and upgrade, which would free existing plant areas and clay reserves for property development.
That seems to be the reason behind the move into Queensland, (which also offset the slum in NSW), with four acquisitions of cement masonry businesses.
With the state accounting for 25 per cent of national dwelling starts the move is understandable and you might ask why not earlier?
Brickworks told the analysts briefing it owned 4,570 hectares of land, 900ha of which is considered surplus and available for development or sale.
It has the jointly owned Brickworks and Macquarie Goodman Trust, which was formed to hold developed industrial properties from Brickworks land in Sydney’s west.
Meanwhile the linked company Washington H Soul Pattinson & Co, which owns about 59 per cent of Brickworks, says first half profit fell almost 10 per cent to $38.7 million, from $42.97 million in the previous corresponding period.
The company will pay an interim dividend of 11.5 cents a share, up from 11 cents last year.
