Brickworks swings to loss as CEO warns on impact of land taxes

The chief of the nation’s largest brickmaker says governments ‘need to get their head read’ as they continue to burden manufacturers with land taxes.

Brickworks CEO Lindsay Partridge in Sydney. Picture: James Croucher

Brickworks boss Lindsay Partridge says state governments have “their hands in the cookie jar” by imposing hefty land tax bills on manufacturing sites which threaten the viability of businesses and which would ultimately feed through to higher prices for end consumers.

The boss of the nation’s biggest brickmaker was also highly sceptical about the federal government’s target of building 1.2m new homes over the next four years to alleviate the housing crisis.

Mr Partridge said “tell ‘em they’re dreamin’!”, as labour and raw materials shortages and a sclerotic building approval regime would make the government struggle to even build 800,000 homes.

Speaking to The Australian after Brickworks released its first-half results on Thursday to report a loss of $52.1m, Mr Partridge, highly agitated by the taxes, red tape and bureaucracy now saddled on Australian businesses that is also weighing down the Australian economy, said the bricks and housing materials company had lifted prices by 10 per cent last year and would likely seek another 10 per cent hike in the next 12 months — driven by costs which consumers would ultimately have to carry.

He sheeted home much of this pricing pressure to government taxes, namely land tax.

“Our margins are under pressure and some of the things we can’t control, unfortunately the government has their hands in the cookie jar and thinks it is a good idea to tax the cost of production.

“And this all feeds through, and to put land tax on manufacturing sites — you really need your head read because you are not going to get any payroll tax if the business doesn’t stack up because you have killed the business with your land tax.

“The government thinks it is smart because it can hide its taxes in the cost of production but in reality all that means is you are going to keep on driving up the cost of production.”

Turning to the federal government’s aims to build 1.2m new homes Mr Partridge said he initially, and politely, described this as a “nice aspiration” but he now sees it as “dreaming”.

“They’re dreaming. They would be lucky to get 800,000, they will be one third short at least.”

Mr Partridge also turned his guns on state governments that have become addicted to large infrastructure projects which are sucking in any available labour and raw materials to leave manufacturers such as Brickworks scrambling to get a hold of key materials. The irony being, he added, that in projects such as upgrades to Sydney Airport its huge and insatiable demand for raw materials meant Brickworks, which is supplying the airport’s works, couldn’t get hold of materials to complete the job.

“Not only is it the costs of increased government taxes, such as land tax, government has spent so much on infrastructure so we are fighting for trades people and skilled workers for our factories and we are fighting for raw materials.

“So we are fighting against Sydney Airport for raw materials for our masonry plant to supply the Sydney Airport. They are bringing in so much material to go into their runways and all the rest of it, there is a shortage of raw materials that we need to make the products that they need to build the airport.”

Meanwhile, Australia’s biggest brickmaker Brickworks expects low levels of new housing approvals will see sales of its building products continue to soften for the next six months, but record immigration and population growth should eventually deliver a new building boom.

Brickworks, which also operates one of the largest brick operations in the US, will in the meantime restructure its operations to deliver savings of $1.2m a month from February to the bottom line and has lifted prices for its products, such as bricks and roof tiles, to bolster its margins through a lull in building activity.

It was a different story in the US, where market conditions across the single-family residential segment have rebounded over the past six months, Brickworks said, particularly in the key Midwest region, where it has the largest exposure to this segment, through an extensive vertically integrated retail network.

These mixed fortunes as well as a drop in value for its industrial property assets saw Brickworks on Thursday swing to a loss of $52.1m for the half year to January 31 against a profit of $354.4m a year earlier.

Although rent for its vast swathes of industrial land across, especially across western Sydney, remain strong as supply of suitable land remains scarce, these higher rents have not reflected in higher property values and Brickworks was forced to revalue its billion dollar property value.

Earnings were adversely impacted by property sales and non-cash property revaluations, with a loss of $249m recorded in the first half, compared to a profit of $376m last year. A non-cash devaluation of $233m was recorded on its Property Trust assets, following the independent valuation process completed in December 2023. This loss reflected an increase in capitalisation rates across the portfolio to 5.1 per cent from 4.1 per cent.

Mr Partridge said the downward revaluation was driven by rising interest rates — with Brickworks actually harvesting growing rents from its industrial properties. He said the fall in property values for the first half of 2024 needed to be compared against $615m in revaluation gains delivered in the prior five years as capitalisation rates compressed.

A loss of $16m was also booked for the first half following the sale of the M7 Hub Estate.

For the wider Brickworks group, which takes in its building products and investment portfolio through its 26.1 per cent stake in Washington H Soul Pattinson, interim revenue fell 6.3 per cent to $547.4m.

Brickworks declared an interim dividend of 24c per share, up from 23c, and payable on May 1. Brickworks has maintained or increased normal full-year dividends for the last 48 years.

Its flagship Australian building products arm saw revenue drop 11 per cent to $323m with earnings also down 11 per cent to $23m as residential commencements continued to decline, in response to higher interest rates and a reducing backlog of work from the HomeBuilder program.

Nationally, detached house commencements were down 18 per cent, with declines of 10 per cent or more across all of the major states.

At its North American bricks business, sales rose 2 per cent to $224m as earnings soared 43 per cent to $6m. In local US currency, sales fell 1 per cent.

Its investment portfolio recorded earnings of $76m, down 24 per cent, driven mainly by a decline in the contribution from New Hope to Soul Pattinson’s earnings. The market value of Brickworks’ 26.1 per cent shareholding in Soul Pattinson was $3.24bn at the end of the half, up by $137m at the end of July.

Brickworks said its inferred gross asset backing was more than $36 per share. Shares in Brickworks ended up 29c at $28.31.

Originally published as Brickworks swings to loss as CEO warns on impact of land taxes