The trick with linked companies, Brickworks and Washington H Soul Pattinson, is to ignore the cross shareholdings and the impact they have on the results for both groups, and focus just on Brickworks’ building products business.
That business is a good economic indicator, especially in housing and construction.
Ignore the impact of huge one-off transactions, as there was last year when the associate, New Hope, generated a huge capital profit from selling a Queensland coal prospect back to BHP Mitsubishi for a $1.7 billion profit.
There’s a similar sort of hit, though much smaller, coming later this year from the big profit New Hope will get from selling its 16.7% of Arrow into the takeover offer from Shell and PetroChina.
That’s not to say the final profits, skewed as they are by these big one-off profits and the cross shareholders, should be ignored. They have produced big dividends for shareholders across the group.
But to get a better idea how both companies are travelling, look at the way the non-linked independent businesses are doing.
In the case of Brickworks, it’s the building products group, specifically bricks, tiles and associated items.
Earnings from its key business were up a solid 12% in the half as the impact of the spending on schools and the first home buyers grants kicked in.
That’s a definite signs of improvement and the company is confident there’s more to come later in the year.
"Brickworks full year result is expected to be solid due to lower interest expense as a result of the conservative level of gearing and the improving performance of the Building Products division," the company said yesterday in a statement to the ASX.
"This is due to the initial signs of recovery that are already evident in the housing market and the expansion of the Building Products division into new growth areas. The Investments division is also forecast to maintain performance."
The shares ended up 5c at $12.63.
The company said it "posted a normal net profit after tax (NPAT) of $57 million for the half year ended 31 January 2010, up 12.1% from $50.8 million on the previous corresponding period.
"Brickworks’ half year headline NPAT (including non-regular items) was $88.2 million, down 65.5% from the previous corresponding period." That’s thanks to the New Hope profit a year ago.
Soul Patts owns just over 44% of the shares in Brickworks and Brickworks owns 42% of the shares in Soul Patts, which owns 60% of New Hope.
In yesterday’s statement, Brickworks’ chairman, Robert Millner, said, “Our diversified model has driven a solid result for Brickworks. Our normal result highlights increased earnings derived from the Building Products and Property divisions and lower interest payments."
The company nudged up interim dividend of 13c a share from 12.5c in the first half of last year.
The Building Products division recorded an earnings before interest and tax (EBIT) result of $21.8 million for the half year, up 32.9% from $16.4 million from the previous corresponding period.
“The result was higher due to increased volumes and higher average selling prices,” the company said.
The Land and Development division produced an EBIT of $12.3 million for the half year, an increase of 1.7% from $12.1 million for the previous corresponding period.
The company said its investment in Washington Soul Pattinson & Company (WHSP) contributed $39.9 million for the half year, down 16.5% from $47.8 million in the previous corresponding period. The market value of Brickworks 48.25% shareholding in WHSP was $1.396 billion, up 24.1% or $271.0 million, from $1.125 billion at 31 July 2009.
At Washington H Soul Pattinson the New Hope bonanza of a year ago had a similar impact on interim earnings with an 87% fall in first half profit after one-off items.
Net profit for the six months to January 31 was $123.4 million, down from $940 million in the previous corresponding period, the company told the ASX yesterday.
The previous period’s result included that huge profit from the Saraji sale.
Before one-offs, Soul Patts earned a profit of $97.1 million, down 17.4% on $117.5 million in the previous corresponding period.
"This decrease was mainly attributable to a reduced contribution from New Hope Corporation Limited as a result of lower international coal prices and the stronger Australian dollar," Washington H said in a statement.
The company declared an interim dividend of 14c, up from 13c at the corresponding point last year.
The company’s shares rose 18% to $13.80, up 1.3%.
The market value of Washington H’s listed investment portfolio was $3.9 billion at January 31, up from $2.8 billion a year earlier.
New Hope contributed $67.4 million in the first half, down from $1.1 billion in the previous corresponding period.
Washington H’s other controlled entity, its 78% owned Pitt Capital Partners, contributed a loss of $100,000, down from an $11.5 million profit in the previous corresponding period.
The company said its associates also contributed to the result:
Australian Pharmaceutical Industries Limited (24.6% held) contributed a net profit of $2.9 million to the Group (2009: $2.2 million).
Brickworks
