Brickworks Limited (ASX:BKW) Review of Results For The Year Ended 31 July 2010
Building Products posted a much improved result for the year with EBIT up 44.3% to A$53.4 million, driven by government stimulus spending and improving market demand. This offset the weaker result from both Land and Development and Investments. This again demonstrates the stability of earnings afforded by the diversified business model. Brickworks' overall result was assisted by lower borrowing costs as a consequence of reduced debt levels.
Normal earnings per share ('EPS') were 76.7 cents per share, down from 85.6 cents per share for the previous year due to the increased number of ordinary shares on issue.
Directors have declared a final dividend of 27.0 cents fully franked, taking the full year dividend to 40.0 cents fully franked, up 1.0 cent from the previous year.
The record date for the final ordinary dividend will be 23 November 2010, with payment being made on 1 December 2010.
Brickworks Net Debt reduced by A$155.4 million to A$226.6 million at 31 July 2010 improving the Net Debt to capital employed to 12.1% from 21.8% the previous year. Total Interest Bearing Debt also decreased to A$300 million reducing the gearing (debt to equity) to 18.2% at 31 July 2010 from 29.2% at 31 July 2009.
This was achieved with proceeds from the Share Purchase Plan ('SPP') of A$173.9 million announced in September 2009 and proceeds of A$58.6 million from property sales.
Cashflow from operations increased 11.0% to A$146.5 million in the year ended 31 July 2010, from A$132.0 million in the previous year.
Borrowing costs decreased to A$24.5 million due to the reduction in average debt levels compared to the previous period and included the mark to market valuation of swaps of A$3.9 million.
Normal tax expense decreased 15.4% to A$15.9 million during the year.
Dividends of A$58.2 million were paid during the year, compared to A$51.8 million in the previous corresponding period.
Working capital, excluding assets held for resale, increased by A$106.0 million to A$222.3 million mainly due to increased cash deposits and debtors balances from both increased sales in the second half of the year and the additional businesses acquired during the period.
Finished goods inventory levels in the Building Products Group reduced by A$9.2 million to A$103.2 million during the year after excluding the effect of businesses acquired during the year.
Capital expenditure increased to A$25.2 million in the year ended 31 July 2010. Spending on acquisitions totalled A$53.1 million for the year comprising the Brick and Block masonry business at Port Kembla in New South Wales and the Sasso Precast Concrete panel business at Wetherill Park in New South Wales, after no acquisitions were made in the previous year. Equity investments of A$16.1 million were made to assist the refinance of the JV property trusts.
Brickworks has no banking facilities due for renewal in the coming year with all facilities due to mature in August 2011.
Net Tangible Assets ('NTA') per share increased by 12.2% to A$9.28 per share as Total Shareholders Equity increased A$278.5 million to A$1.650 billion.
Total non-regular profit net of tax reduced from $191.5 million in the year to 31 July 2009 to A$28.6 million in the year to 31 July 2010. The previous period included an equity accounting adjustment from Washington H. Soul Pattinson ('WHSP')(ASX:SOL) (PINK:WHPCF) due to New Hope Corporation's (ASX:NHC) sale of the New Saraji mine. The current period includes a tax adjustment of A$38.7 million on the increased tax carrying value of the investment in WHSP that was partially reduced by the cost of the closure of the Eureka tile business at A$7.0 million and acquisition and other costs of A$3.1 million.
It is now likely that Australia will adopt the International Accounting Standard on leasing of assets in either 2012 or 2013. It is anticipated that this will result in most if not all operating lease assets and liabilities being included in the Balance Sheet. Brickworks currently has operating plant and equipment and mobile plant with an original cost of approximately A$61 million under operating lease arrangements. The current Wollert plant expansion in Victoria will be a leased asset. It is also expected that properties rented for sales and manufacturing will be impacted by this new standard. Total lease and rental payments of A$16.9 million were made during the year that were fully expensed against the Building Products Group EBIT.
Brickworks Building Products Group
Total dwelling approvals for Australia were up 28.5% to 170,824 for the 12 months ended 31 July 2010, from 132,936 in the previous corresponding year.
There has been a spike in building activity however current approval levels are similar to where they were at the same time last year. Seasonally adjusted total dwelling approvals for the month of July 2010 of 14,962 were only 7.0% higher than the monthly approvals for July 2009. The withdrawal of the First Home Owner Boost scheme has seen demand in this segment of the market return to historical averages.
All states in Australia have one or more factors affecting housing supply and affordability. These include availability of land for development, delays in registration of land, high infrastructure charges and lack of finance for construction of medium and high density dwellings and land development.
New South Wales experienced the largest percentage increase in dwelling approvals of any of the states, up 41.8% from 23,842 for the 12 months to 31 July 2009 to 33,814, albeit from a historically low base. Improved activity was seen in both detached housing, up 25.2% to 17,078 and the multi-unit residential segment up 64.1% to 16,736.
Queensland experienced a modest increase in total approvals for the 12 months ended 31 July 2010 of 17.2% to 33,167, after experiencing the sharpest decline in activity of any State in the prior year. The multi-unit residential market was the hardest hit in 2008/09 with a 40.2% decline in activity and only recovered 22.4% in the year ended 31 July 2010. Detached housing approvals increased 14.9% to 22,475 for the 12 months to 31 July 2010.
Victorian approvals increased to a record high of 56,814, up 33.1% from 42,677 approvals in the previous corresponding year. This result has been driven by the sustained release of affordable land for housing, targeted government stimulus and limited regulatory red tape. Multi-unit residential approvals were the strongest segment growing by 53.3% to 17,651 for the year. Detached housing approvals also increased by 25.7% to 39,163.
Western Australia experienced an increase in building activity with total approvals of 25,146, up 30.4% from 19,280 in the prior year. Multi-unit residential construction was the stronger sector, up 67.4% to 5,149. Detached housing experienced a more modest improvement of 23.4% to 19,997 approvals.
South Australia continued to enjoy a stable construction market with an increase in total dwelling approvals of 9.4 % to 12,745 for the year.
Tasmanian approvals increased by 9.2% to 3,303 total approvals in the 12 months ended 31 July 2010.
New Zealand Market Conditions(2)
The New Zealand economy emerged from recession during the year and building consents were up 17.7% for the 12 months ended 31 July 2010 to 16,426. All of the growth came from housing, up 27.6% to 15,495 with apartments down 48.5% to 931 for the year.
Building Products Results in Detail ------------------------------------------------ Year Ended Change July 2010 2009 2010 % ------------------------------------------------ Revenue $mill 489.3 580.3 18.6 EBITDA $mill 64.7 79.1 22.3 EBIT $mill 37.0 53.4 44.3 Capital Expenditure $mill 17.2 23.9 39.0 EBITDA margin % 13.2 13.6 3.0 EBIT margin % 7.6 9.2 21.1 Employees 1,364 1,414 3.7 Safety (TRIFR)(3) 180.5 169.8 (5.9) Safety (LTIFR)(4) 7.6 3.0 (60.5) ------------------------------------------------Revenue for the year ended 31 July 2010 was up 18.6% to A$580.3 million compared to A$489.3 million for the prior year. Revenue in the second half at A$317.3 million was up 20.6% on the first half.
Earnings Before Interest and Tax ('EBIT') from the Building Products Group was A$53.4 million, up 44.3% on the prior year. EBIT in the second half of A$31.6 million was 45.0% higher than the first half of the year.
Margins were increased through improved average selling prices and control of unit manufacturing costs, despite a shift in the sales mix towards high volume low margin housing builders caused by the government stimulus programs. This movement in customer mix was counterbalanced by increased sales of high margin products to the Building the Education Revolution ('BER') program.
Increased demand enabled production volumes to be increased and plants consequently operated at higher capacity utilisation. Manufacturing costs were under pressure from large increases in inputs, especially gas and electricity. These higher input costs were partially offset by the improvement in production efficiency.
Employee numbers were reduced by 21 or 1.5% on a like for like basis excluding acquisitions, during the year to 31 July 2010. Including the acquired businesses employee levels increased by 50 to 1,414.
The total number of work injuries has continued to decline with another improvement in the Total Reportable Injury Frequency Rate ('TRIFR') to 169.8, down 5.9% on the previous year. Brickworks' commitment to providing a safe workplace has seen the Lost Time Injury Frequency Rate ('LTIFR') reduce by 60.5% to a record low of 3.0 for the year ended 31 July 2010.
An integral factor in the achievement of Brickworks' goal of being Australia's Best Building Products Company is maintaining its market leading status in world class displays and selection centres. A number of new Design Centres were constructed during the year including Geelong in Victoria, Busselton in Western Australia and Cairns in Queensland.
The program of revitalising existing company displays and Design Centres continued with extensive work completed across the Group including at Horsley Park in New South Wales and Christchurch in New Zealand.
Capital expenditure increased during the year as the constraint on new capital projects imposed during the Global Financial Crisis ('GFC') was removed. New projects were targeted at delivering a safer workplace, improved production efficiency, better product quality and environmental management.
Spending increased to A$23.9 million in the year ended 31 July 2010, up from A$17.2 million in the prior year. Stay in business capital expenditure was up A$4.1 million on last year to A$15.1 million, 58.5% of depreciation of A$25.8 million. Depreciation was reduced by A$1.9 million as the first Wollert plant was leased for 10 years. Major capital expenditure was A$8.8 million and included the new factory roof at Riverview in Queensland.
Brickworks further reduced total greenhouse gas emissions during the year by 1.0% despite increased production volumes. The reduction in emissions was able to be achieved with the closure of older less efficient plants and increasing production volumes through more efficient plants such as Wollert in Victoria.
For the complete Brickworks Review of Results, please refer to the following link below:
About Brickworks Limited
Brickworks Limited (ASX:BKW) was listed on the Australian Securities Exchange in 1962 and has paid a dividend every year since then. It has three Groups - Building Products, Land and Development and Investments. The Building Products Group includes Australia's largest bricks producer Austral Bricks(TM), Austral Masonry(TM), Bristile Roofing(TM) and Austral Precast(TM). The Land and Development operation maximises value from surplus land and redundant building products sites. Investments include a 42.85% holding in Washington H. Soul Pattinson.
Washington H Soul Pattinson & Company Limited
Souls Private Equity Limited
Ruralco Holdings Limited
New Hope Corporation Limited