Brickworks lays the foundation for weighty results writedown

Australia’s biggest brickmaker confirmed to the market that it would recognise a $123.5m post-tax impairment in its annual results.

The slowdown in some construction markets has led Brickworks to flag a $123.5m post-tax impairment. Picture: Bloomberg

Construction materials supplier Brickworks is feeling the pinch from a slowdown in high-rise apartment and commercial building activity in Australia and the US, flagging hefty writedowns ahead of the its full-year results.

Australia’s biggest brickmaker confirmed to the market on Thursday that it would recognise a $123.5m post-tax impairment when it releases its results later this month, including a $54.7m reduction in the value of its Austral Masonry business and a $68.8m charge against its North American unit.

In a statement to the ASX, Brickworks blamed a deterioration in multi-residential building activity in the second half of 2023-24 for the hit to its local ­masonry operation, with the decline in high-rise projects in Sydney and Brisbane described as “particularly severe”.

Higher costs across the business were also taking a toll, including land tax and raw materials, which the company said had yet to be fully recovered by recent price increases.

According to a recent report from BIS Oxford Economics, residential commencements slipped to their lowest level since 2012 in the year to June, while ABS figures show multi-unit building ­approvals in the month of June had also fallen to a 12-year low.

Brickworks said the short to medium-term outlook for North American non-residential building activity in its key markets of the Northeast and Midwest had weakened following “significantly reduced activity” during the second half of 2023-24.

It said strong competition in the single-family housing segment had also resulted in pricing and volume pressure.

Scaled down production at new and upgraded manufacturing sites in Australia and the US were also yet to be fully realised, Brickworks said in its statement.

The company reported a $52m loss in the first half, which was ­affected by a $233m devaluation of its industrial property holdings across Sydney.

At the time, former boss Lindsay Partridge warned that low levels of new housing approvals would cause sales of its building products to soften in the latter half of the fiscal year.

And while record immigration and population growth, coupled with the federal government’s plan to build 1.2 million new homes over the next five years, is expected to underpin growth over the longer term, Mr Partridge has been highly sceptical about the industry’s ability to deliver the ambitious pipeline, given the shortage of labour and materials, and sclerotic planning regimes across the country.

Thursday’s writedowns remain subject to finalisation, audit and board approval, and will be confirmed when Brickworks hands down its full-year results for the 12 months to July on September 26.

They will be the first under new boss Mark Ellenor, who succeeded Mr Partridge following the industry veteran’s retirement in July after 39 years with the company, including 25 years in the top job.

In a note to clients, Citi analyst Suraj Nebhani said the impairments were unlikely to impact Brickworks’ underlying earnings – the key performance measure for investors. Citi retains a buy rating on the shares, with a 12-month target price of $37.50.

The company’s shares closed down 48c at $25.57 on Thursday.