Brickworks (ASX:BKW) share price on watch after posting 38% profit decline

The Brickworks Limited (ASX:BKW) share price will be on watch today after posting a sharp decline in profits in FY 2020…

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Disappointing results

The Brickworks Limited (ASX: BKW) share price will be on watch this morning following the release of its full year results.

How did Brickworks perform in FY 2020?

For the 12 months ended 31 July 2020, Brickworks reported a 4% increase in revenue to $953 million and a 34% decline in earnings before interest and tax (EBIT) to $206 million.

On the bottom line Brickworks posted a 38% decline in underlying net profit after tax to $146 million. On a statutory basis, net profit after tax was up 93% to $299 million.

Brickworks’ statutory result includes a significant one-off profit in relation to its shareholding in Washington H. Soul Pattinson and Co. Ltd (ASX: SOL), triggered by the merger of its associate TPG Telecom Ltd (ASX: TPG) with Vodafone Australia.

Despite the decline in its underlying profits, the Brickworks board declared a final fully franked dividend of 39 cents per share. This was up 3% on the prior corresponding period and brought its full year dividend to 59 cents per share. This was a 4% increase on FY 2019’s dividend.

How did its businesses perform?

One of the main drags on the company’s performance in FY 2020 was the Australian Buildings Products business. It reported a 9% decline in revenue to $687 million and a 43% reduction in EBIT to $33 million. This was driven by challenges associated with the pandemic and headwinds due to declining market activity.

Things were better for its Building Products North America business. It delivered EBIT of $10 million, up 63% on the prior year. Though, this was largely the result of new acquisitions.

The company’s Property Trust business was a highlight in FY 2020. This was thanks almost entirely to its joint venture with Goodman Group (ASX: GMG), which helped the business report EBIT of $129 million for the year.  

Finally, also dragging on its results was its Investments business. It reported a sizeable 51% decline in EBIT to $51 million due largely to its stake in struggling coal miner New Hope Corporation Limited (ASX: NHC).

Outlook.

FY 2021 looks likely to be a better year for Brickworks.

Management notes that demand for its prime industrial property is strong thanks to the shift to online shopping.

It also advised that Building Products Australia has experienced an increase in orders and sales across most businesses in September. In addition, the company revealed that it has had feedback from homebuilders that activity is building across the country.

Over in North America, the company expects short term demand to be impacted due to COVID-19. However, thanks to cost cutting and efficiencies, it is expecting improved earnings once trading conditions normalise.

Management concluded: “The Company has a diversified portfolio of attractive assets and a robust balance sheet that provides resilience to any short-term challenges and economic uncertainty caused by the COVID-19 pandemic, whilst also providing strong growth prospects over the long term.”

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Brickworks and Washington H. Soul Pattinson and Company Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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