Brickworks had a very strong six months to January thanks largely to investments, especially its property trust JV with Goodman group and the one-off benefit from the takeover of Milton Corp by associate Washington H Soul Pattinson.
Statutory after-tax net profit jumped 720% to $581 million, boosted by the one-off benefit in relation to the deemed disposal of Soul Patts shares via the Milton merger.
Excluding this impact, and other significant items, the underlying net profit after tax was $330 million, up 269%.
That was on a 24% lift in revenue to $535 million, meaning the company is on track to report annual revenue of just over $1 billion for the first time.
However, it only increased its dividend by a single cent to 22 cents which was parsimonious given the higher returns from property and building products.
Brickworks reported a 6% increase in revenue in its building products Australia business to $330 million and an 84% lift in its North American building products business to $187 million which was due to the acquisition of IBC in August 2021.
Earnings though was in part due to higher investment earnings of $73 million a 66% rise in earnings from building products to $27 million.
The big influence was a $349 million increase in the value of its share of its joint venture property trust with Goodman Group to $1.260 billion.
Brickworks CEO Mr. Lindsay Partridge, was very pleased with the performance of its property trust, saying in the results commentary that “We have seen strong demand and sustained growth in the value of our Property Trust over a number of years.”
“The pandemic has only fuelled this growth, by accelerating industry trends towards online shopping and increasing the importance of well-located distribution hubs and sophisticated supply chain solutions.
“These trends are reflected in our independent revaluation process, that has resulted in average capitalisation rate compression of 50 basis points to 3.6%, across the leased assets within the Property Trust.”
Looking ahead, Mr Partridge was optimistic but warned of potential challenges.
“Brickworks is in a strong position, with a diversified portfolio of attractive assets. The increasing scale of our operations means we are on track to record over $1 billion in annual Group revenue, for the first time.”
“Of course, the outbreak of war in Ukraine has created increased uncertainty that has the potential to significantly impact all of our businesses in a variety of ways.
“These impacts may include the price and availability of energy, upward pressure on inflation and interest rates and a decline in consumer confidence.
“Further strain on international supply chains is already evident, with shipping rates increasing back to levels not seen since the worst of the pandemic,” he added.
And to add to the rising dominance of property, rather than building products in brickworks future, the company and Goodman Group are moving to create what they call a new operational property trust.
Thursday’s release explained that Brickworks has been exploring opportunities to realise value from its portfolio of operational land and is now in advanced discussions in relation to a potential transaction that would include the launch of a new joint venture property trust in partnership with Goodman, comprising a portfolio of properties tenanted by Brickworks’ building products business.
An initial portfolio of 15 building products’ properties, with a total gross value of around $415 million, has been identified for inclusion in the first stage of the jointly-owned operational property trust.
The sale and lease back of these manufacturing sites will deliver gross cash proceeds of around $200 million and an estimated pre-tax profit of $260 million to $280 million.
Mr Partridge said: “The partial sale of a selection of our manufacturing sites will enable Brickworks to secure cash proceeds and recognise profit from the significant underlying land value of these sites. Over the longer term, the partnership with Goodman will support further value creation, with some properties having the potential for development and greater utilisation.”
The shares rose nearly 5% to $22.87.
