Brickworks Limited (ASX: BKW) shares are under pressure on Thursday.
In morning trade, the building products company's shares are down 3% to $25.26.
Why are Brickworks shares falling?
Investors have been selling the company's shares today after it released an update on its full year results.
According to the release, Brickworks has undertaken a review of the carrying values of its assets, as at 31 July 2024.
In accordance with its accounting policies and the applicable accounting standards, Brickworks will recognise a total non-cash impairment charge of $172.4 million (pre-tax) or $123.5 million (post-tax) in its FY 2024 full year results.
What are the impairments?
Brickworks' impairment charges relate to its Austral Masonry and Brickworks North America businesses.
For Austral Masonry, it will recognise a non-cash impairment charge of $78.1 million pre-tax.
This reflects an accelerated deterioration in multi-residential building activity in the second half of FY 2024. It notes that June commencements across Australia are forecast to be at the lowest level for more than a decade.
The decline has been particularly severe in the high-rise segment (4+ storeys) in Sydney and Brisbane, which are key markets for Austral Masonry.
In addition, it includes a delay in realisation of the full benefits from the increased invested capital in Austral Masonry, including the new plant at Oakdale, in Western Sydney. This follows the scaled back production output in response to the decline in market activity.
Management also notes that higher costs across the business, such as land tax and raw materials, are yet to be fully recovered by recent price increases.
What about Brickworks North America?
For Brickworks North America, it will recognise a non-cash impairment charge of $94.3 million pre-tax.
This is reflective of significantly reduced activity during the second half of FY 2024, and the weakening of the short to medium term outlook for non-residential building in the key markets of the Northeast and Midwest regions of the United States.
In addition, it highlights that following the completion of a significant plant rationalisation and upgrade program, subdued building activity has resulted in scaled back production output and a delay in realisation of the full benefits of these initiatives.
And finally, strong competition, particularly in the single-family housing segment, has resulted in pricing and volume pressure in selected regional markets.
No guidance has been given for Brickworks' results. However, investors won't have to wait long to find out how good or bad they are. Management advised that it plans to release its FY 2024 results in two weeks on 26 September.
