Building products manufacturer fighting market slump

A tough construction and building market has lead to unimpressive half-year financials for Austral Bricks supplier Brickworks, recording an 18.8% slump in profits, however the company is confident that a new direction will shelter it from the storm.

The Brickworks Building Products Group manufactures Austral Bricks, Austral Masonry, Bristile Roofing, Austral Precast and Auswest Timbers products.

Brickworks recorded a normalised net profit after tax (NPAT) of $49.5 million for the half-year ending 31 January 2012, which is 18.8% lower than the $61 million achievement during the same period a year earlier.

According to Brickworks chairman, Robert Millner, the last six months has been “difficult”.

Millner cites the “convergence of extremely challenging market conditions and significant restructuring activities” as reasons for the decline.

At the company’s annual general meeting in November last year, Millner announced plans to prepare the company for expected housing market deterioration during the rest of the half-year.

During the half, the company consolidated operations to one site in both the Austral Bricks Queensland and Austral Bricks Victoria divisions, "significantly simplifying these operations", according to a company update.

In Western Australia, Plant 3 at Cardup will cease operations in July 2012, however will not be dismantled until the property is redeveloped in future years.

Brickworks says this will allow flexibility to re-start the plant should conditions warrant.

"The majority of products currently made at Cardup will be transferred to the more modern
Malaga manufacturing plant, increasing utilisation and efficiency of this operation. The
Malaga Plant has the flexibility to produce a wide range of contemporary, high quality
products," said the company.

The company’s managing director, Lindsay Partridge, claims the restructure is proving a successful venture, placing the company in a strong position moving forward.

He also anticipates a building sector resurgence in the next few years.

“Despite the difficult first half, we are optimistic about the medium term outlook for the business. If history is any guide, the recent reduction in the cash rate by the Reserve Bank of Australia should result in a turnaround in building activity,” said Partridge.

“We believe we are now close to the bottom of the building cycle and anticipate a recovery in housing construction activity in the years ahead.

“In addition, we have seen significant industry rationalisation in recent times, including a reduction of industry brick capacity of around 25% since 2009.

“Capital investments over the past five years place most businesses in a strong competitive position over the medium to long term. In relation to the second half in particular, the Building Products Group will benefit from the internal restructuring activities and inventory controls implemented in the first half.

“In addition, as the first half includes the traditionally slow months of December and January, earnings typically skew to the second half, all else being equal.”