The Brickworks Limited (ASX: BKW) share price has traded lower today following the release of its annual results.
For the year ended 31 July 2017, the owner of Austral and other construction and property businesses reported revenue of $842 million, up 12%.
Underlying profit, which the company says excludes 'significant items', came in at $196 million, up an impressive 34% on last year's result.
Brickworks' building products business reported a 14% fall in operating profit, which it attributed to an, "extremely challenging period in Western Australia". Building starts, a forward-looking measure of construction activity, was down 22% in the state. That brings the two-year decline in building starts down nearly 40%. The decline is having a big impact on profit and offsetting the success of Brickworks' East Coast businesses, the company noted.
Fortunately, says Brickworks Managing Director, Lindsay Partridge, things are looking up. "We now enter 2018 in a much-improved position in Western Australia, with a lower cost base and operating capacity in line with the expected demand, but with the flexibility to adapt to any change in conditions."
Brickworks' property business notched up a meaningful 23% jump in profit to $91 million, with its joint venture alongside Goodman Group (ASX: GMG) juicing its profit.
Finally, operating profit from the Investments business came in at $103 million, up 73%. Brickworks owns nearly 43% of Washington H. Soul Pattinson & Co. Ltd (ASX: SOL), which also owns shares in Brickworks.
Commenting on Brickworks' progress and outlook Mr Partridge said, "Overall, we remain positive about the short to medium term outlook, with the strong order book on the east coast and the restructuring initiatives undertaken in the west expected to underpin 2018 earnings."
As Robert Millner announced earlier today, Mr Partridge called out energy prices as a key uncertainty moving forward. "Ironically, energy price increases have come at a time when reliability of supply is increasingly uncertain, with our operations continuing to experience unexpected outages, and facing the prospect of black-outs and forced load sharing arrangements."
In South Australia, Brickworks installed backup electricity generators, costing the company $1.5 million.
Nevertheless, the company must be satisfied with its progress and outlook, since it increased the final dividend to 34 cents per share fully franked.
Foolish Takeaway
Brickworks is a strong business operating in a mildly competitive industry. However, it has benefitted immensely from Australia's insatiable appetite for property. Given the cyclical nature of property and construction markets I'm not a buyer of Brickworks shares today.
