Weakness in Western Australia’s residential construction sector is throwing up significant challenges for building product manufacturers, weighing on the profits of ASX-listed outfits Brickworks and Boral.
Weakness in Western Australia’s residential construction sector is throwing up significant challenges for building product manufacturers, weighing on the profits of ASX-listed outfits Brickworks and Boral.
Brickworks, which largely operates in WA under the Austral Bricks brand, last week announced a $104 million net profit for the six months to December 31, a 35 per cent increase on the previous half-year driven by strength in east coast markets.
However, in WA, Brickworks chief executive Lindsay Partridge said sales declined significantly due to the downturn of building activity in the state, resulting in the necessity for extensive restructuring.
Earnings for Brickworks’ Auswest Timbers were down 10 per cent, to $25 million over the half year, with roof tile batten sales down 40 per cent.
Austral Bricks turned in a better result than Auswest Timbers, with its earnings up 17 per cent, but that was thanks to strength on the east coast, whereas in WA the company experienced a sharp decline in sales and margins.
“Within Austral Bricks, the high-cost Malaga plant has now been closed and commissioning of the upgraded Cardup plant is under way,” Mr Partridge said.
“Similarly we have consolidated Auswest Timbers in WA by rationalising four operations onto one site at Greenbushes.”
Brickworks is expecting those changes to result in lower unit production costs at both Austral Bricks and Auswest timbers for the second half of the financial year.
And while the company expects conditions to stabilise for the rest of FY2017, the strength in Brickworks’ east coast operations was a stark contrast to WA.
Brickworks said its total workforce was steady at 1,490 over the half year, with a reduction in WA staff from the rationalisation of operations offset by an increase in staff on the east coast.
“Historically the WA housing cycle has moved approximately in line with the east coast,” Mr Partridge said in a presentation to analysts.
“However, this relationship has broken down dramatically over the past two years, with WA being significantly impacted by the downturn in mining, causing negative net migration.
“This has created very challenging conditions for operations in that state.”
Last month, Boral released its results to market, with its half-year result a strikingly similar outcome to that of Brickworks.
Boral’s half-year net profit was up 12.3 per cent on the previous corresponding six months, rising to $153.4 million.
However, a 34 per cent plunge in sales at its Bricks WA business, which includes Midland Brick, resulted in 100 jobs being slashed.
Midland Brick also shut down part of one of its manufacturing facilities, with the three operating kilns at the Middle Swan facility now operating at 80 per cent utilisation.
In total, Boral said it had cut a quarter of its workforce at Bricks WA, while it also copped a $2 million write-down associated with its restructuring efforts.
