Brickworks boss says energy supply a major election issue as company returns to profit

Brickworks has nailed a return to half-year profit, but says energy supply concerns continue to dampen manufacturing investment, labelling LNG imports ‘an absurdity’.

Brickworks is back in the black but the housing construction sector remains at a cyclical low.

The chief executive of one of Australia’s largest building products manufacturers believes energy supply will play a major part in the coming federal election and has labelled any LNG imports as an “an absurdity”.

Brickworks chief executive Mark Ellenor said concerns over long-term gas supply were retarding manufacturing investment and he called for a portion of new gas developments be reserved for industry.

“We’re very concerned about energy supply in this country,” he told The Australian.

“This has been coming at us like a freight train for 20 years and it’s finally become an election issue. The thought of importing LNG and injecting it into the east coast pipeline is an absurdity.”

There is speculation that Australia may have to import LNG next year to head off feared gas shortages. However, Australia is one of the largest LNG exporters in the world and in the 2024 financial year, exported around 175.9 million megalitres.

Mr Ellenor said demand for building materials in Australia was expected to remain at a cyclical lows, with subdued sales activity forecast to continue for the remainder of the current calendar year.

However, he said looking beyond the short-term market weakness, the broader macro-economic environment was showing signs of demand returning to the building materials sector, supported by the recent cut in the cash rate.

“We are at the bottom of the cycle absolutely in Australia and I think it’s about the same in America. I don’t think we have any further to go,” he said.

“We welcome the interest rate relief, albeit it needs to go a little bit further in both countries.

“In our biggest markets in NSW and Victoria there’s just no sign that the residential market is turning around in those two states over the calendar year. The multi-resi and non resi really need to come back as well. It’s pretty quiet.”

Brickworks CEO Mark Ellenor.

However, Mr Ellenor said the undersupply of housing built in Australia over the past five years will underpin Brickworks when the market returns.

“We have to get through the election in Australia and I think a couple more interest rate cuts, then I think we will see a sustained upturn,” he said.

“We have some mothballed capacity when we took a few plants offline. We have good capacity in good condition that we can bring them back as the market picks up.”

In six months to January 31, Brickworks reported that total revenue fell 6 per cent to $516m, after its US segment revenues fell 13 per cent to $194m. The building products Australia segment was steady at $321m.

Underlying earnings before interest, taxes, depreciation and amortisation (EBITDA) improved to $148m, compared to the prior corresponding period’s loss of $40m.

Statutory profit came in at $21m, compared to a loss of $51m in the previous corresponding period. Underlying net profit after tax from continuing operations improved to $76m, from the previous corresponding period loss of $37m.

Brickworks said it managed to hold EBITDA margins by implementing price increases, cost controls and productivity improvements across operations, but the market remains challenging.

The group will pay a slightly higher interim dividend of 25c per share (compared to 24c in previous corresponding period) on May 1.

Mr Ellenor forecast that energy supply and housing affordability will be major election issues.

He said there has to be a reset on the tax regime on the housing sector, which takes up about half of the cost of the average new home in Sydney.

“You need a fair few interest rate drops to cover the increase in the taxes and another big problem is the delays in building a home,” he said.

“Developers are sitting on land because it takes so long to get these approvals through. They seem to be drip-feeding them through and when they do come through the cost of sitting on the land for such a long time is what’s driving a lot of the costs higher.”

Mr Ellenor said Brickwork’s carbon emissions had reduced by 55 per cent since 2006.

“We now have half the amount of plants and the same capacity we had before. We went and modernised ourselves to deliver returns to our shareholders before the green wave came in,” he said.

“We are in front of that and will continue and have set ourselves another carbon reduction goal of 15 per cent by 2030 and we’re on track to get there.”

Brickworks shares were 22c higher at $24.02 at 1305 (AEDT).