Oh, good afternoon, ladies and gentlemen. It's 12 noon, and we'll now start the presentation. And welcome to our analyst briefing for our results ending July 31, 2023. If you don't know me, my name is Lindsay Partridge, and I'm the Managing Director of Brickworks Limited. Our presentation today includes a showcase of a number of our wonderful jobs that we've done. And we've got a very impressive photograph here. You would think this building would have been built maybe 100 years ago, but it's not. It's just been completed. And it's a picture of the college building at Vanderbilt University in Nashville, Tennessee, and it comprises a series of four buildings, each with over 800,000 bricks from our Mid-Atlantic plant.
Today, I'll start by providing an overview of our commitment to sustainability and our responsible business. I will then spend a moment discussing our long history of asset growth and shareholder returns, before providing an overview of our results for the year. Mark Ellenor, our Chief Operating Officer, will provide more detail on divisional performance, and Grant Douglas, our Chief Financial Officer, will then take you through the financials. I'll later return to discuss the outlook for Brickworks. We'll then be happy to take questions at the conclusion of the presentation. Okay, I've just been told that I'll make some changes in the slides. Okay, good. As I mentioned, first and foremost, we want to talk about our commitment to responsible business practices. Responsible business starts with providing a safe working environment for our employees. During the year, our safety performance improved, with fewer injuries being recorded across the organization.
The total recordable injury rate decreased to 10 in the financial year 2023, down from a little over 12 in the prior year. This was driven by a significant reduction in the injuries in Australia. After three years of declining injuries in North America, the incident rate increased slightly in financial year 2023. When further analyzed this outcome, we found that 40% of the injuries in North America were attributable to employees who had been with the company for less than one year. In response to this, a strategy to manage this risk has been implemented. Unfortunately, the improvement in our overall injury statistics was overshadowed by a fatal accident that occurred in July, when an employee of a contractor operating at our Austral Masonry plant in Cairns lost his life.
The incident occurred during processing of waste products under the management of a reputable concrete recycling company. As we look back on the year at Brickworks, our thoughts turn to his family, and this tragic accident reinforces our ultimate goal of zero harm across all of our operations. We continue to strive toward this goal through disciplined implementation of safety management system and procedures, together with behavioral leadership and safety training programs. At Brickworks, we understand our long-term responsibility and the impact of and influence we have on the environment, our customers, employees, communities, and our shareholders. We take great pride in manufacturing our products in a sustainable way and integrate sustainability and innovation into our product design, resulting in greater energy and resources efficiency over the operational lifetime of the building.
We recognize that our manufacturing processes is emission intensive, and as such, we are focused on leading our industry in reducing those emissions. Within our property business, we aim to be the world's leaders in sustainable industrial property design and development. A number of significant achievements are outlined on the screen and contained in our 2023 sustainability report, which we have released today. While we have made significant progress already, we're committed to achieving more, and I am pleased to announce that we have developed a new carbon target to achieve a 15% reduction in Scope 1 and Scope 2 greenhouse gas emissions by 2030, from a 2022 base across our combined Australian and North American operations. We've integrated this and a number of other new commitments into our Build for Living sustainability strategy, which is also included in our sustainability report.
Looking beyond our commitment to responsible business, we are, of course, focused on maximizing shareholder returns. One of the key elements of delivering superior shareholder returns is our focus on delivering long-term, sustainable asset growth. We've been proactive and deliberate in our strategy to deliver asset growth, particularly over the past five years. In building products, we've expanded internationally with the creation of Building Products North America, and we have invested heavily in a major capital program. Importantly, we have divested some businesses such as Auswest Timbers and Austral Precast. This has allowed us to allocate our resources on a more focused portfolio of the most attractive opportunities. Within property, we have proactively responded to significant increases in demand for prime industrial land by fast-tracking the release of land and bringing forward development of new facilities.
Over the past five years, the pace of development activity has been unprecedented, despite the challenges of the pandemic. These initiatives have contributed to a AUD 1.7 billion increase in the net value of our property trust since financial year 2018. We've also seen a significant increase in the value of our stake in Washington H. Soul Pattinson. Today, after including additional debt and leasing as well as other liabilities, our net assets, as reported on the balance sheet, have grown by 70% and now stand at AUD 3.6 billion. This equates to AUD 19.96 per share. However, our balance sheet does not recognize the full market value of our assets.
For example, land held outside the property trust is held at historical cost rather than the current value, and the asset value of investments is based on equity accounting value rather than market value. As such, we also present the inferred asset backing of the company, which adjusts for these other and other factors. Inferred asset backing includes investment in Washington H. Soul Pattinson and FBR, with a market value of AUD 3.1 billion. The net asset value of our property trust is AUD 2.3 billion. Building Products' net tangible assets across Australia and North America is investment is AUD 579 million, and three parcels, sites have a current as-is value of AUD 384 million.
So adding this up and subtracting our net debt of AUD 652 million, the net inferred asset backing is currently around AUD 5.7 billion. On a per share basis, this equates to $ 37 per share. On the right-hand side of the chart, we have reconciled this value with the balance sheet net tangible assets of AUD 19.96. By highlighting the key differences between the two values. As mentioned, this is partly due to the balance sheet not recognizing the full market value of development land and our investments. In addition, we recognize tax liabilities on our balance sheet due to the capital appreciation of our property holdings and our investment, mainly in Washington H. Soul Pattinson. We're proud of our long history of dividend growth and the stability this has provided to our shareholders.
Therefore, I'm happy to announce that the board has declared a fully franked dividend of AUD 0.42 per share. This is an increase of AUD 0.01 or 2% compared to the previous final dividend. The record date of the dividend is November 1, and the payment is on the November 22nd. As shown on the screen, this year represents the 10th year in a row of increased dividends. We've now maintained or increased dividends for the last 47 years. As a matter of fact, and if you look at the history of the company, there's only one year they ever reduced, and that was in 1975. The outcome of delivering assets and dividend growth is superior long-term return for our shareholders.
Based on the share price at the end of the period, the company has delivered shareholder returns of 12.2% per annum for 25 years, incorporating both dividends and share price appreciation. This means that AUD 1,000 invested in Brickworks in 1998 would be worth almost AUD 17,700 at the end of the period. Performance over a range of periods is also shown on this slide, with Brickworks's performance exceeding the index over all time frames. I will now turn to the results for the year and start by running through the key highlights. The photo on the screen shows Austral Masonry Tech pave bricks used on the forecourt of the Allianz Stadium in Sydney. This project took out the Bruce Mackenzie Landscape Award in the recent 2023 Think Brick Awards. I'll get to the right slide.
I jumped on, so... That's on there. Although earnings are lower than the record achieved in the prior year, it has been another successful year, with the company recording an underlying profit of AUD 508 million. As I mentioned a moment ago, we've also, we've also have a strong focus on asset growth. Over the year, the value of our net tangible assets held within our property trust increased by AUD 520 million, and the market value of our shareholding in Washington H. Soul Pattinson was up by AUD 685 million. Within Building Products, we are nearing completion of our major capital investment program. This is headlined by the substantial completion of our new brick factory at Horsley Park.
Even as we've invested to double the size of our asset base over the past 5 years, we've retained gearing at a conservative level. EBITDA from continuing operations of AUD 784 million was down 26% the prior year. Although earnings were lower, this is the second-highest earning results we have ever recorded, and given the macroeconomic conditions, we are pleased with the performance across most parts of the group. It is also worth noting that last year's underlying earnings included much higher property revaluation profit, and also the one-off benefits associated with the sale of operational properties in the Brickworks Manufacturing Trust. As I mentioned, underlying net profit after tax was down 32% to AUD 508 million. This translates to an underlying earnings per share of AUD 3.34.
Including the impact of significant items and discontinued operations, statutory profit was down 54% to AUD 395 million. Last year's statutory profits included a significant one-off profit in relation to Washington H. Soul Pattinson, who divested Milton. Net tangible assets per share were up by 9% over the period, and I'll now hand over to Mark, who will go through the operational performance. Do you want me to fix the size for you? Do you want me to fix it? That's at 300.
Thank you, Lindsay. As you would be aware, Brickworks has a portfolio of four divested businesses, each with significant assets and strong market positions. I will now provide a more detailed overview of the performance of each division. Property delivered another outstanding result in full year 2023, generating EBIT of AUD 506 million. A highlight for the year was the sale of Oakdale East Stage 2 into the Industrial JV Trust for AUD 301 million. The sale delivered a profit of AUD 263 million, after taking into account the book value and transaction costs.... Property trust assets were revalued during the period, resulting in a profit of AUD 112 million. A significant increase in the assessed market rent for the leased assets more than offset an increase in the average capitalization rate across the portfolio.
A development profit of AUD 78 million was also recorded following the completion of new facilities at Oakdale West during the year, and substantial progress on the remaining site of the estate. Following new completions, the Industrial JV Trust reached the significant milestone of 1 million square meters the leased area. Rental income continues to grow, and net trust income for the year was up 37% to AUD 50 million. This includes a AUD 9 million contribution from the Brickworks Manufacturing Trust. The total value of leased assets held across the property trust was AUD 4.9 billion at the end of the year. The trust also holds a further AUD 878 million in land that is currently under development. After including borrowings of AUD 1.2 billion, total net asset value is AUD 4.5 billion.
Brickworks' 50% share of net asset value is now almost AUD 2.3 billion, up by AUD 520 million during the year. Gearing was 21% at the end of the year. This comprises gearing of 23% within the Industrial JV Trust, and no debt being held within the Brickworks Manufacturing Trust. At the end of the year, the effective interest rate across the trust was 4.9%, and interest rate hedges were in place over 75% of the loan book. There's a great picture there at the top, which is the old Plant Three site. I think if Lindsay and I had a dollar for every step that we took up and down those kilns, we might have exceeded the profit of this year.
But you know, it's just a great facility over a long time and really contributed since 1973. I mean, that plant ran for 50 years and put 500,000 houses in New South Wales are built out of bricks from that factory. So as a key highlight for the year was the sale of the Oakdale East Stage Two into the trust. Oakdale East Stage One is shown on the right and is already developed and held within the Industrial JV Trust. Highlighted in red is the balance of the site, which we call Stage Two.
In the foreground is the former Austral Bricks Plant Three site, which is now partly demolished, and this plant has been replaced by the new Horsley Park plant, which is about 2 kilometers across the road and is now at about 75% output. Work is also well underway on the rehabilitation of the quarry area, which has a longer lead time than other sections of the site. It is expected that the first parcel of land within the estate will be fully serviced and ready for construction to commence by early calendar 2024. Strong inquiry is already being received from customers looking to secure facilities at this stage. Despite increasing interest rates, we are continuing to experience strong demand for our property.
Structural trends are driving our customers to seek large-sized, well-located industrial facilities and sophisticated supply chain solutions, with consumers increasingly demanding faster and more flexible delivery of goods. In addition, supply of suitable land is scarce, particularly in Western Sydney. Sydney has the tightest logistics property market of any major city in the world, with a vacancy rate of just 0.2%. This is reflected in a zero vacancy rate across our portfolio. Supply challenges across the industry are also being exacerbated by increasing construction and financing costs and a range of planning and approval issues. As shown by the chart on the screen, all of these factors have driven up rent for prime industrial property in Western Sydney by 48%, which is incredible, over the last year. This is the highest increase of any region across the country.
Given our highly concentrated portfolio, with 93% of our industrial trust assets in the region, we are particularly well placed to benefit from this trend. Including the Brickworks Manufacturing Trust, the current annualized rent across our portfolio is AUD 178 million. Within the industrial JV trust, the average passing rent is AUD 148 a meter, which is now around 34% below the market rent of AUD 225 a square meter. On our leased facilities, an uplift in rent to market rates will progressively be realized as leases are renewed. The average lease expiry period for the Industrial JV Trust is 7.9 years, with the lease durations ranging from less than one year to 19 years. The market-to-market rental uplift on existing leased assets will add around AUD 82 million in rent.
In addition, completion of the balance of the Oakdale West will deliver around AUD 32 million in additional rent, and development of Oakdale East, around AUD 59 million. Therefore, the total rent potential of existing property trust assets is around AUD 350 million, and double today's passing rent of AUD 178 million. Most importantly, this growth will require no further capital from Brickworks, with the value of our land contribution at Oakdale East being matched by development funding for Goodman. In addition, the low gearing levels within the industrial trust will allow debt funding as required. We believe future market rent will continue to be supported by the significant increase in construction costs, strong demand, and tight supply, and that this will eventually be reflected in the trust asset valuations. Turning to investments, which primarily consists of our 26% interest in Washington H. Soul Pattinson .
Investments delivered an underlying contribution of AUD 159 million for the year, down 12%. The decrease is primarily due to a lower contribution from the strategic and private equities portfolio to Soul Patts earnings. During the year, cash dividends of AUD 89 million were received from WHSP, up 46%. This includes a special dividend cleared in September of 2022. The market value of our investments, which also includes a shareholding in FBR Limited, was valued at AUD 3.121 billion at the end of the year, up by some 29%.... Our shareholding in WHSP dates back to 1968. WHSP is now Australia's leading publicly listed investment house, with a broad asset exposure, as shown by the chart on the left of the screen.
They have delivered outstanding returns with annualized total returns, including dividends of 13.6% per annum over the past 25 years. This represents outperformance of 5% per annum versus the ASX Ordinaries Accumulation Index. Turning to Building Products Australia. Residential commencements declined significantly during 2023 financial year in response to rising interest rates and a reduced backlog of work from the HomeBuilder program. Nationally, detached house commencements were down 18%, with double-digit decline across all states. Although commencements have now declined significantly from the recent peak, there was a healthy pipeline of projects under construction during the year. Building timelines have extended as a result of supply chain delays and labor constraints. As a result, the usage of brick and roof tiles on site is now typically lagging commencements by more than six months.
Looking across the states, residential housing activity has been the weakest in Western Australia, with detached house and multi-residential commencements down 31% and 43% respectively. The major east coast states have typically seen decline in the range of 10%-20%. Despite the reduced commencement, sales remained resilient, with revenue for the year up 6% to AUD 734 million. The higher revenue was driven by strong price increases being achieved across most businesses, with higher revenue in Austral Bricks and Concrete Products, partially offset by the reduction in Bristile Roofing. EBIT was AUD 53 million for the period, and EBITDA was AUD 100 million, down 13%, excluding the one-off benefit in the prior year due to sales of operational properties into the Brickworks Manufacturing Trust. Unit margins decreased as a result of cost pressures across the supply chain.
Across Austral Bricks, unit electricity costs were up some 28% year-on-year. Labor was up 13%, and maintenance was up 12%. Fortunately, our brick operations are protected from raw material input cost increases through our direct ownership of our clay quarries, most of which are on our brick site - Brickworks sites . In our Concrete Products and Bristile Roofing businesses, where we source the raw materials such as sand and cement from external suppliers, our unit raw material costs were up by around 20%. The implementation of price rises and productivity improvement initiatives partly offset the impact of cost increases. Additional price increases late in the year were implemented to restore margins to the prior levels. The launch of Brickworks Manufacturing Trust also resulted in a negative AUD 5 million impact to EBIT compared to the prior period.
Within Austral Bricks, earnings were down by 3% on the prior year. Sales volume in Western Australia was sharply lower than the first half. This followed many years of sustained operating losses in Western Australia. After a detailed review of the outlook and strategic options, it was decided that further investment in Western Australia could not be justified. As such, manufacturing operations have ceased and a controlled exit of the Austral Bricks Western Australian operation is underway. Anticipate to finalize by about April of next year. Concrete product earnings significantly increased compared to the prior corresponding period, with Austral Masonry and Southern Cross Cement both delivering improved results. Earnings were lower in Bristile Roofing, with a decline in sales volume in Victoria and New South Wales. Labor constraints impacted our manufacturing efficiency due to a loss of skilled employees at both our tile production facilities.
The construction of the new brick plant that Lindsay talked about at Horsley Park in Sydney was substantially completed in the second half, with final commissioning now well underway. As I mentioned, the completion of the project allowed the permanent closure of the Plant Three site at the Oakdale East, and the consolidation of our operations in Western Sydney, the Horsley Park site. The project started just prior to the onset of the COVID pandemic and has suffered significant disruption, delays, and cost escalation. The completion of the project is a testament to the perseverance of our team, of employees and contractors who have remained steadfast in their dedication despite these issues. This will arguably be the most productive brick plant, if not the Southern Hemisphere, certainly around the world.
There's some 15 robots, as you can see, a couple of them there on the screen, and as most of you know, robots don't like working from home. So we've got them working around the clock, and they're producing some very good quality brick. You'll see our common brick there on the top left-hand side of the screen for render, bag, and internal work, but we'll predominantly be making face bricks at that factory, which we're commissioning at the moment. In light of the inflationary pressures experienced across the industry and the significant increase in capital costs for all new projects, the completion of this facility is particularly valuable for our business. Once commissioning is complete, we expect the plant to be operating at design capacity of 130 million bricks per year.
Turning to North America, where activity has been mixed during the period, varying significantly by region and segment. Across the country, the total value of building activity commenced was up 2% compared to the previous year. A 25% increase in non-residential segment was offset by a 26% reduction in single family and a 7% decline in multi-residential commencements. Our key regional exposure is in the Midwest, the Mid-Atlantic, and the Northeast. Combined, these three regions make up around 90% of total sales revenue. Building activity in these regions was relatively consistent with the rest of the country, with increased activity in non-residential building, offset by weakness in the single-family segment. Sales revenue is up 12% to $447 million for the year.
The uplift in revenue was achieved through a combination of price increases, a mix shift towards higher value products, and strong sales growth through our vertically integrated retail division. Earnings include a AUD 7 million contribution from the sale and leaseback of a retail outlet in the second half. Excluding this, the impact of this, EBITDA was down 5% to AUD 33 million, and EBIT was AUD 6 million.
... Operations continue to be impacted by labor constraints across the industry, resulting in higher wages to attract and retain staff. In North America, labor costs represent 43% of our total brick manufacturing costs, much higher than 28% in Australia. Despite these challenges, the business continues to make progress on key strategic priorities. The plant rationalization program continued during the year, with the closure of our plant in Caledonia, Ohio, in the first half, and then Marseilles, Illinois, in the second half. Following these closures, the plant rationalization program is now largely complete and has resulted in a reduction in operating plants to seven from 16, an increase in plant utilization to 72% from 46, and a modern and fuel-efficient fleet, with the average age of the kilns reduced to about 20 years from more than 40 years when we purchased the businesses.
Extension upgrades to Sergeant Bluff and Adel plants, both in Iowa, were completed during the half. In addition, production of handmade and thin bricks were consolidated with the Mid-Atlantic and Pittsburgh plants, respectively, both in Pennsylvania. I'll now hand over to Grant to review the financials in more detail. Thank you, Grant.
Thank you, Mark. The picture on screen shows our imported La Scandella roof tiles in Curvado Glaze, used on the iconic Bondi Pavilion in Sydney. This restoration and conservation project was the winner of the Robin Dodds Roof Tile Excellence Award at the 2023 Think Brick Awards. As Lindsay mentioned, total underlying group EBITDA for the year was AUD 784 million, down 26%. After depreciation and amortization, the underlying group EBIT was down 28% to AUD 709 million. Borrowing and costs increased to AUD 53 million due to higher average interest rate on debt and additional lease interest, including leases on properties held within Brickworks Manufacturing Trust. Including income tax of AUD 148 million, this resulted in an underlying net profit after tax from continuing operations of AUD 508 million.
Significant items decreased net profit after tax by AUD 103 million, and I'll discuss those in more detail in a moment. In addition, discontinued operations contributed an after-tax loss of AUD 11 million for the period. This was mainly related to non-cash asset impairments and closure costs related to the Austral Precast business. Statutory net profit after tax was AUD 395 million for the year. While down 54% on the prior year, as Lindsay mentioned earlier, last year's statutory profit included a significant one-off profit in relation to our holding in Washington H. Soul Pattinson. The table on the screen shows the significant items in more detail. The key items are a non-cash impairment of AUD 35 million net of tax, based on AASB 136.
This mainly relates to the Austral Bricks WA impairment, recognized at the half, in consideration of a loss of market share and our poor market outlook for this business. AUD 23 million in costs net of tax associated with the exit from the Austral, the Western Australian brick market in the second half, as mentioned by Mark earlier. This mainly relates to non-cash inventory write-downs, redundancy payments, and obviously other liabilities associated with exit. Plant relocation and commissioning costs were AUD 18 million net of tax, including the new Oakdale East masonry plant and the new brick plant at Horsley Park. Restructuring costs of AUD 14 million net of tax were mainly related to plant closures in North America, and an AUD 8 million loss net of tax, representing our share of significant items from investments.
This includes a loss of AUD 11 million upon derecognition of FBR as an associate. Turning to the cash flow. Total operating cash inflow for the year was AUD 97 million, down from AUD 130 million the prior year. Cash generation was adversely impacted by lower building products earnings, plant commissioning expenses, and the higher borrowing costs. Capital expenditure of AUD 114 million was incurred, mainly related to the construction of a new brick plant in Sydney. The major capital program that's been ongoing for the last few years is now largely complete. Dividend payments of AUD 97 million were made during the year. Looking at a range of key financial indicators, as Lindsay mentioned, net tangible assets per share were up 9% over the period to AUD 19.96.
Shareholders' equity increased by AUD 301 million to almost AUD 3.6 billion, which represents AUD 23.40 a share. Underlying return on shareholders' equity was 14%. Net debt increased to AUD 652 million. Taking into account the increased equity, gearing was up marginally to 18%. Interest cover remains conservative, but has reduced to 13 times. I'll now hand back to Lindsay to discuss the outlook.
Thank you, Grant. Mark? As discussed earlier, we anticipate significant rental growth within the Industrial JV Trust in the coming years as new developments are completed and rent reviews are undertaken. In the financial year 2024, we expect development profits to be lower than in financial year 2023 due to the development schedule at Oakdale West and East, and we expect the portfolio evaluations to be underpinned by the strong rental growth, even if capitalization rates expand further. We are continuing to evaluate opportunities within the Brickworks Manufacturing Trust and at our potential future development sites, such as the Mid-Atlantic site in Pennsylvania and the Craigieburn site in Victoria. Across Building Products, order intake is now softening, and we are anticipating a decline in demand in the months ahead.
Having said that, I've got to say, I'm surprised how much, how well it's held up in the first couple of months of this year. And looking back over the full year of last year, our volume of brick sales only up, like, 4% was really quite surprising.
... In Australia, the impact of the slowdown in sales will be offset by the portfolio rationalization activities already completed, such as, the exit from the loss-making brick, Austral Bricks WA business. In North America, our operations have a broader end market exposure and stand to benefit from the relative strength of the non-residential segment. Across both countries, manufacturing costs will benefit from the extensive plant rationalization and upgrade activities that have been completed over the past few years. In addition, price rises will support our unit margins. Meanwhile, Washington H. Soul Pattinson is expected to continue to deliver a stable and growing stream of earnings and dividends over the longer term.
Having modernized our manufacturing fleet and expanded scale over the past five years through our significant investment program, our priority has now turned to maximizing the returns delivered by the enlarged asset base and improving cash generation. With our diversified portfolio of high-quality assets, Brickworks is well-placed to meet any future challenges and continues to deliver good performance for shareholders. On the screen is another award-winning project at the Think Brick Awards. This mixed-use residential development in Newcastle utilizes our San Selmo smoke bricks in a custom blend. The project took out the Horbury Hunt Commercial Award, which honors innovation and craftsmanship in brickwork and commercial projects. I must say, it's obviously a beautiful project. We'll now take any questions, and I might... We've got early hands up here.
I might just take the ones online first, if we can, and then I'll come back to the audience here. Thanks, Mel.
Thanks, Lindsay. The first question is from Tim: How will you be controlling costs in order to maintain margins in the building products division?
Well, I think the first thing we've done, we've already done in the last 12 months, because we've been able to see this, potential downturn coming for a while, is to eliminate any loss-making operations. And that's why we've got out of, WA, why we've got out of Precast. We've taken quite an aggressive role in that. But having said that, you know, we're always continually reviewing every other expense in the business is being reviewed.
And of course, there are significant savings or significant improvements in efficiency that are coming out of the new masonry plant, which is now fully commissioned, and the new Brickworks, even running at 75%, it's already the most efficient plant, kiln, as far as fuel consumption we have in the group, and it is already every week when we measure it, it's number one or number two worldwide as far as the labor efficiency, so incredibly efficient, and it's only running at 75%. So it's clear it's going to be the most efficient plant once we push the speed up a little bit more. Any other one?
Question from Liam Schofield: Your industrial cap rate has increased 40 BPS to 4.1%. Are you seeing many transactions supporting this? To this end, how have GMG's return expectations changed to reflect the higher interest rates?
There's been limited transactions in that market, and you can understand that, why, when the market is fully rented and the rents have gone up by 48%. I think, you know, our view today is that our valuations are gonna hold even though the cap rates will increase because of those increased rents. And as the term of that WALE comes down and those leases roll over, that'll be reflected in the valuations without even if the cap rates expand. So longer term, I mean, the view is eventually that significant, massive increase in rents has to be reflected in the valuations of those properties.
Also from Liam: You talked of the shortage of housing supply relative to a decline in housing commencements. Are you seeing any signs of increased appetite from developers to build more residential dwellings?
Yes. Well, that, that's been going on for quite a while. Just talking about in Australia, overnight, we saw, loan approvals for first-time buyers, which is a really important segment. First-time buyers up 18%. We saw loans to investors climb 10%. You know, builders have been reporting for a number of months that they're starting to see improved activity.
So yes, it did fall down a long way, but it started to come back, and it might anticipate that as we work, it could be up to 18 months of pipeline there, and so depending by state, but as we see that worked off, that hopefully then the new work then will start coming through, and it won't be as bad as what, when you just look at the approvals graphs on its own without realizing the amount of work that's in the pipeline. In America, we're a little bit more actually bullish because housing didn't come off much, very much at all. As you know, in North America, people work on a 30-year fixed mortgage. That stabilized back in October last year.
Now, you know, Mark was telling me this morning, so 70% of people have a mortgage, which is below 4%. They're not going anywhere. They're not gonna go out in the market and take a 6.7% mortgage. So there's no existing houses for sale. The only way you can get a house is build one. The rental vacancy rate in all of America has dropped below 0.7%, which is incredibly tight. So, going forward, the demand for housing is gonna be very strong. I think it's actually gonna be stronger than Australia in the short term. Clearly, in the longer term, with that huge immigration in Australia, they're gonna have to rapidly increase construction of houses. But the other part is, of course, that's only a proportion of our business.
You know, we're very much involved in the medium and high density. We're involved in universities, schools, hospitals, police stations, fire stations, football stadiums, fast food chains, and, you know, that's the bulk of our business, and that has really continued on really quite strongly. Any more?
Brickworks' annual sole dividend income is now approaching Brickworks' annual dividend payout, and Brickworks' property trust income has recently increased and is projected to further increase significantly... Does this mean Brickworks shareholders can expect more meaningful dividend increases in the future?
Yes, well, I've got to compliment Washington H. Soul Pattinson on such a strong lift in their dividend today. That was, that was a surprise to us as well. So congratulations to them. Look, it's something that we look at. I mean, yes, our gearing's run up a little bit higher than we wanted because of the, you know, there was a couple of things that, that didn't go our way as far as, money coming in, and there was, of course, the plant that we built cost us more than we thought, and so we end up with a little bit higher gearing than we would otherwise wanted.
So clearly, we're maybe a little bit conservative on the dividend until we see those turn, things turn around, and particularly, you know, that we're concerned that there may be a bit of a slowdown in the next 12 months. So we're just being conservative at this point in time, but eventually, and historically, you know, we've tried to see that our dividends are somewhere around, you know, the earnings that we get from sales, or the dividend we get from sales, plus the earnings we get from the property trust. And we know that the income from the property trust is only going one way because those buildings either are about to start paying rent, a lot of new additional buildings, or their buildings are under construction, which are gonna come through.
So, yes, we're very positive on both, both of those fronts that the dividends will continue to increase, as they have for the last 10 years.
Could management please expand on their stated short-term goal in the outlook of maximizing returns from the enlarged asset base and increasing cash generation?
Well, that's always our objective. I mean, I think generally, I'd say across the community, people have been shocked at the scale of inflation, and we were very aggressive before it came through. But we're a bit surprised in the first quarter of the current year. I call it the infrastructure-driven inflation and the demand for raw materials that we've got into the airport and the railway lines, and they've left the rest of the market short, even when we needed that product to supply those projects. And so we got a little bit behind in our price rises, but we've clearly have got our, pedal to the metal now, haven't we, Mark? Trying to catch up on those price rises. So we've got that.
We've got a lot of this rationalization in America behind us now, and we're starting to see the benefits that come through. But we've got these new facilities which are now either fully operating, fully commissioned, as is the masonry or very close to being fully commissioned, such as the new Brickworks. And we've got rid of a non-performing asset. So, you know, we're very confident that we're going to see improved earnings, I mean, subject to market conditions, going forward.
No more online questions, Lindsay.
Okay, right. The front there, here on the left.
Thank you. Lee Powell from UBS. Thanks for your time-
Good to see you, Lee.
-Mark and Grant. Lindsay, in the release this morning, it says, "Order intake is now softening," and then you go on to talk a bit, little bit about the backlog. Can you... I mean, you don't clarify whether that's the U.S. or Australia, but can you maybe just give us some color on the level of that softening that you're seeing now, and then just how we should reconcile that with some of your peers' comments that-
Yeah
Current activity is, like, holding in there, and with the backlog?
Yeah, yeah, well, I mean, that's what I said. Our sales for last year were only down 4%, and most of that was in WA. And matter of fact, when we say softening, most of the softening is because we're extracting ourselves from WA. And if you remove that out, I mean, I looked at some figures this month just finished, our order is running down, like 5% in bricks across Australia after we take WA out. So, you know, really holding up quite well. And when you put the price rises across that, when you look at the sales dollars, they're very respectable.
Yep. Excellent, and-
And then Mark, Mark might talk to North America on the same subject. Yeah.
Yeah, basically, all the same as we go, and in fact, I think we're a bit further ahead in North America. You know, we saw the softening probably this time last year. Mind you, the past on this one has been pretty-
Mark, you have to come up here, Mark. Mark, you have to come up here and talk to Mark. Yeah. Online. Oh, is that... Imagine if you're fine.
Okay. No, I think what we're seeing in America is probably a year ahead of what we've seen over here, Lee. There's obviously sort of softening there first as the interest rates were going up, and then the sort of housing came off a little bit. That being said, a lot of the state, you know, state governments over there put a lot of money in infrastructure like they've done here, and they've got on a schools building program. There's a lot of hospitals coming through, like up in Brisbane. But, you know, our order bank has certainly recovered ahead of what it has here, and we're getting some good price rises through in America, up some sort of 11% on last year.
Actually, one of the markets that might surprise you, South Australia. Little old South Australia is the strongest market we've got year-on-year. It's up dramatically because the government reduced stamp duty on new, new homes. Is there a stamp duty? Yeah, stamp duty. There was no stamp duty if you're a first-time buyer. And this had an enormous shot in the arm. They're running, they're up, like, 20+% . That's incredible, so...
So, do you have a, like, an updated view on when that backlog ends then, if you're up 5%?
Varies a bit, varies a bit state by state. We've got some builders telling us in Victoria they'll run through to Easter next year-
Mm-hmm
... if you look at the strongest, and whereas on the other side, we think Brisbane is on the bottom right now, and will be start turning up by September. So, I mean, that's quite a spread, and I don't think a lot of people sort of... The markets don't run in sync. They never run in sync. They're always a little bit out of sync for various reasons. So we've got South Australia booming, right? Brisbane on the bottom, and most probably, you know, Victoria through to April next year. But then, as we speak, we're seeing new policies come out in Victoria, which should be positive. We're seeing new policies come out in New South Wales.
One of the biggest, one of the policies you might not, may or may not have picked up on it, the New South Wales government is talking about putting three- and four-story walk-ups back in the market. That, in the early noughties, did one of the most enormous damages to our company because that was our bread and butter market. All those buildings were all full brick. An average 12-apartment, three-story walk-up had half a million bricks in it. And that they're gonna cookie cut these, they're gonna make some designs and put them back out. So that, that's missing in the market, and that's one of the reasons we've got a housing shortage, is that they really need to start producing those buildings.
They're affordable, they're a fraction of the cost of building anything that's got a lift in it.
Mm-hmm.
And they can be built in suburbs, and I think people don't get overwhelmed by the density, you know? So that would be a big positive for Sydney if we got three- and four-story buildings back in the market.
Mm-hmm. And then the WA piece in the second half, can you give us an idea of what the EBIT was for that business? That won't-
Well, I think I mentioned before, you know, that business traditionally was losing about AUD 1 million a month, you know, so AUD 12 million a year, something like that.
Mm-hmm.
You know, so that's been reduced by 90%. So, you know, it gives us a fair-- Just there alone, there's a, you know, a positive impact to our results going forward.
Yep. And then the pricing. Mark, you talked to pricing in the U.S. before, but Lindsay, pricing in Australia, can you just give us an idea of the pricing that you have in the market now and what kind of realization you're getting on that?
Yeah. Well, yeah. Bricks was about more 10 or 11%. Masonry, we put 13% through. It was very significant, but we had two price rises in masonry, the second one right at the end of the year, and that's coming through now.
Mm-hmm.
I think, I think that if anything that surprised us, it was the massive increase in raw materials and shortages of raw materials, in the first quarter of this year. I mean, we told for Adbri in Sydney, and they are a part of that arrangement, we, you know, get our supplies from them, and they just come on and say, "We can't supply you. Everything, everything's going to the airport." You know, we're pouring concrete out of their new factory at 2:00 A.M. in the morning because you can't get ready mix in Western Sydney during the daylight hours. It's all going to the airport. So until that infrastructure slows down, you know, there's a big inflationary bubble there.
We need to see that get to the other side of it, and I think we'll see costs and supplies come back to normal.
Then one last question, if I can, before I hand it on.
Mm-hmm.
The property business and under renting in the-
Mm-hmm
the trust. I know on the slides you said between one and 19 years, that rolls. Like, you've got a WALE of 7.9, so I'm assuming the way to think about it is that the bulk of that uplift comes in what, within the next 5-10 years? Or is there something going on in the-
Yeah, yeah, less than that, because we've only got a couple of the big properties that have got the long leases. And the others, of course, the valuation, when you look through, look through at the rent, and if it's five years out, obviously, it's obviously getting discounted, but it's only three years out, and a number of those states have only got 2- and 3-year WALEs on them. So a lot of that will be coming through, you know, in the next... What did we work out? In 70% comes through in three years or something like that.
Okay. Excellent. Thank you.
Yeah. Okay, next, Joe. Yeah.
Thanks, Lee. Thank you, Lindsay. Peter Steyn from Macquarie. Lindsay, could you just run us through your inventory position as it stands? It certainly looks like it's down reasonably, materially in unit, in a unit sense.
Mm.
What your production planning looks like for the foreseeable future?
Yeah
in building products
Yeah
Both U.S. and Aus?
Yeah. Well, you know, prior to closing, WA, you know, we had maybe about 180 million-190 million bricks on the ground to go back 18 months ago, and 75 million of those were in W.A.. That's obviously not as far. It's not there yet, but it's halfway to zero. And what we think is unsellable, we've written off. So that's obviously has a massive impact. Now, the rest of the country, if anything, it's fairly tight because we've come off some pretty strong conditions. And also, we were concerned about, you know, when you swap your biggest factory, which is what we just did in the last 3 months, I mean, if the new factory was delayed by a month, the other one had to go off because it was being demolished.
You see all the space, it's gone. You know, we had to get in on that site, hand it over to Goodman. So we were very concerned that we might have a shortage of inventory, and we're bringing in a lot of products from our Brisbane plant down to Sydney to cover for that. But now, like that, I think we've got through that pretty smoothly. We've got everything in stock bar our dry press plant. We've only got the one plant that makes dry press. It's currently on 12 weeks. So if anything, our inventory is on the lower side of where it's been historically. Now, in the coming fiscal year, after we've had a cycle like that, we've run the plants, some of them have run for 9 years or 10 years, particularly in Victoria. We need to take them offline for maintenance.
So over the coming year, and that will have an effect, impact on profit, obviously, but they'll come off one at a time. They'll come off, they'll get cleaned out, and we'll also these days think about what the price of gas is when we come off. So we manage that, that side of it. So they'll come off and get their maintenance, and then, you know, looking forward, we're going to have at least 5-7 years of very strong conditions when this pipeline of work comes through, with the government's talking about the 1.2 million homes. So we've got really, the next 6-9 months, we need to get ourselves ready for that. So I'm not worried about inventory. Does it answer your question?
Yeah. Just want to pick up on your 6-9 months. Is that how long you think this little trough is going to last? And what are you watching for signs for an improvement?
Well, I'll give you an example. This month, we're supposed to have one kiln off. We've got two kilns in Victoria. One of them was supposed to be off this month for maintenance, planned and scheduled maintenance. We're still running it because we need it for production, and we won't stop it until February next year. So, we're sort of looking at that all the time. Sorry, what was the other part of your question there? I think I'm s-
Well, just how, what you're watching for signs of an improvement-
Oh, signs of improvement.
In the beginning of the line.
Well, I said we look at the builders. We hear, on Monday morning, we've heard how many homes the builders have sold over the weekend, and all of our sales meetings, they get that feedback. You know, if this builder does 100, you know, 100 a month and he sold 35 on the weekend, it's been a good weekend. So, some of the builders are pushing up their production rates to try and clear the backlog that they got behind, which is another thing that's happened, 'cause now the productivity on sites come up, the builders are pushing the homes through, trying to clear the backlog. So that's one of the reasons I think the sales have held up. A lot of the builders are running at faster rates. It might seem counterintuitive, but that's what's happening. Yeah.
Yeah. We'll probably take a debate offline.
Okay. Good. Over, over here. Yeah.
Hi, Lindsay. Daniel Kang from CLSA. I guess you spoke about the cost pressures in your bricks business during the year. Are you seeing any easing up of, you know, cost pressures at all in the different line items? Can you talk about the trends in terms of cost of brickies? Has it settled down to a more normalized level from the peak levels that we've seen in the past few years?
Yeah. I mean, there was some crazy things. I mean, we saw the inflation coming when we saw the shortage of containers, and we saw the bulk shipping rates for our imported cement terminal went from $9,000 to $40,000 a day. That was when we knew we were going to get hit with inflation. And then we saw we couldn't get containers and couldn't get pallets. You know, price of pallets doubled. Price of containers went up, what, from 1,500, a lot of cases, to 6,500, which is the number one reason why our cost of our new plant went up, was because we had 600 containers to come in. So those costs have come back. Shipping is now below. We're down, only paying $7,000 or $8,000 a day for, say, 25,000-30,000 ton ship.
Containers are readily available. Pallets is another. I think pallets is going to be a problem long term because the Victorian government's cut off the log supply, and there was a plant in Victoria that made 1 million CHEP pallets a year, and that's going to close. So I don't know where the Victorian government or everyone else thinks they're going to get pallets from, but, we have supplies lined up. So a lot of those things have come back. The raw materials, we're very lucky we had in the ground. We know we've got a gas contract with inflation on it. Electricity is a bit different. The electricity, we pointed out, highlighted how much that's gone up, and I think electricity is going to continue going up. The other concern we're seeing at the moment is the price of fuel.
Diesel, we're seeing this, you know, with the price of oil climbing close to $100. So that's—electricity and fuel, I think, are the two problem areas going forward. I mean, there was some weird things. Plastic bags we put over the masonry went up 400%. Like, you know, why? But that, they just did. So I think over time, those things are going to come back. If we get over the labor shortage and we can put, get people in and put them on wages, I think we've got an electrician working on a night shift somewhere, we're paying AUD 120 an hour. Now, if we had someone on wages, we might only be paying, you know, AUD 120,000 a year, right?
So I think that will come back as those few pockets of shortages of people are overcome. The last bit of your question, oh, brickies. Generally, they have come down. It got to, in some states, AUD 2.40. Generally, now down between AUD 1.40 and AUD 1.80, so that's come back. Generally, they're available. They're definitely available in Queensland. They're still tight in South Australia. And I think they're generally available now back in Victoria. I think they're generally available everywhere, except South Australia. But South Australia always paid their brickies much less than everybody else, and which is part of the problem.
There were figures that came out the other day from HIA about how long it takes to build a home, and the one that stood out was WA, and it got out to 18 months, was it?
Eighteen.
They thought it was great, it got back to 12. But one of the problems there, there was no brickies. But what happened in the downturn, the, the rates got driven down to the point where the brickies would have been earning about AUD 60,000 a year, and they said, "Well, forget that." They all went up to the mines, obviously, to drive, drive Haulpaks . And of course, they wouldn't come back then because the mines were strong, they weren't going to leave. And that's why I think there was a shortage of bricklayers, because there was plenty of bricklayers to build 30,000 homes, you know, five years ago or seven years ago in, in WA. So obviously, a lot of bricklayers left the market in, in that period of time.
Well, thanks, Lindsay. Just, with regards to the industrial property shortage that, you know, you're currently experiencing, in terms of what you can see in terms of the structural demand trends and the pipeline of, suppliers coming through, what's your best assessment of how long this shortage lasts?
It'll be many years. The reason for that is the competing product is on Mamre Road, which is, you know, because it's a little area, you know, between us and the airport, there's that little pocket. That's Western Sydney. If you've got a distribution business, that's where you want to be because the freeways cross. I mean, it's the place to be. And a lot of people, so the airport's obviously going to attract people. But Mamre Road is the main next supply that's coming on, and they've got planning issues, they've got water, they can't get water in. They're not talking making what? 2025 before they even start there. So there's no supply there.
The only land in the market is effectively our land, and if you want a big building, then you've got to come to us because we're the only people who've got big parcels of land. So I don't think you're going to see significant other construction in that period of time. What we have seen, though, on the negative, is that where people took up too much space during COVID, they're now starting to sublet. But when they're subletting, that's in like the 3,000-5,000 meter market. Now, that's a market we only, when we do an estate, you know, we put in the big buildings, and then we put in the next size buildings, and then because the block of land is not square, a couple of corners, we put all these little specs in. That's just the spec market for us.
So it's very, the small end, there might be some more supply come on, but the medium-sized, medium-sized, 25-30,000 meters, and the large, 50,000 meters plus, there's nothing going to come onto the market because there's no land. Any other questions? Okay. Seeing no more questions, I will close it. Thank you very much for joining us today, and we'll be here for a while if any of you got, want to talk to us separately. So thank you.