Brickworks Limited (BKW) Earnings Call Transcript & Summary

Well, good morning, everybody. Thanks for your attendance. Rob Millner is my name. I'm the Chairman of Brickworks. With me this morning, I have: Lindsay Partridge, MD; Grant Douglas, who I think you've all met before, he is our financial man; and the guy on the left, my left, you probably haven't seen before, Mark Ellenor, he's our General Manager of Building Products for Australia and America, and he will give a presentation as well today. So an excellent result. So on that note, I won't steal their thunder, I'll hand over to Lindsay.

Thank you, Chairman. Good afternoon, ladies and gentlemen. And thank you for taking the time out of your busy schedules to spend some time with us today. I'll start by providing an overview about our commitment to sustainability and responsible business. And I know this has become an increasingly important issue for our investors, and we're frequently reminded of that. Then I'd like to discuss our history of asset growth and shareholder returns. And I'll cover the property performance for the first half. Then I'll hand to Mark Ellenor, who will handle the building products for Australia and the United States. And then finally, Grant Douglas will handle the financial numbers. So just looking at this responsible business practices. We understand we've got to take a long-term view to achieve a lot of the issues that are currently confronting us and we've already made significant progress in a number of areas. In our core, our sustainability -- our commitment is to sustainability, and I feel very good this year because I feel there's no more sustainable product than clay bricks. If there is one, please tell me what it is. No one has been up to that to date. There are a number of key areas that we look at. And a lot of that is also in regards to the health and safety of our employees, the diversity of our workforce. We were very pleased to announce that we now have 31% of our senior executives are females and 23% of the total workforce is females. And over a long period of time, we have made significant progress in reducing our carbon emissions. We didn't start now to set some target. Since 2006, we have already reduced our carbon emissions by some 42%. And as far as the community is concerned, we've had a very long association in greater than 20 years, we have supported the Children's Cancer Institute and we have made donations, both the company and the employees of the company have made donations exceeding $4.4 million. Firstly, turning to safety. Once again, we made significant improvement in this area. We had a record total recordable injury rate per million hours of 10.3, and that was down from 11.7 in the prior year. So that was 9.8 in Australia and 10.9 in North America. But what I think we're particularly proud of, if you look at the 2 graphs there, you see that we started a long way behind the [ core ] in the United States. In the space of 5 years, we managed to bring that down to equals the performance we're achieving in Australia. So we're very happy to what's been achieved with Mark and his American team. We had 3 lost time injuries during the period, that was 1 in Australia and 2 in North America. Now looking at the environmental performance, the sustainability of our products. Bricks have a lot of things that are going for them. We go into our bricks 100 -- for 100 years, and we have many buildings out there that are already 100 years old. And when those buildings come to the end of their life, they will be able to be recycled or reused. And that's unlike many of our competitors' products. We have some other critical performance characteristics besides that long life cycle, they're very efficient and very sustainable. A lot of the bricks we make -- clay is very abundant raw material. A lot of the bricks we make, particularly here in Sydney actually come from recycled material, whether the government is building a tunnel or digging a hole to put some waste or, in fact, digging a hole to put a building a lot of that material ends up in our clay pits, and we subsequently make the bricks out of it. So enormous percentage, particularly in Sydney, is made from recycled material. We have -- our products have thermal mass, which is quite different to lightweight materials, reduces the need for artificial heating and cooling. They're low maintenance, fire resistant and do not emit any toxic or volatile compounds. And then of course, they are fireproof. And there was an article yesterday where of all the buildings in New South Wales, which I think is close to 600, that need the cladding -- the combustible cladding replaced, there's only 2 being done to date. Now a lot of those buildings, they're going to actually move away from aluminum all together, they don't feel confident with that. And I think we're going to see a number of these buildings either recladding brick or recladding in brick or recladding some other surround material that is not combustible. And we also have, over a long period of time, produced the bricks from bioenergy. In a lot of cases, that's actually mostly down at Tasmania, where we use sodas, but we're also using other waste carbonaceous materials in our products, which is further reducing our emissions. And we have 2 plants that are running on landfill gas. We also have an arrangement with Delorean where we're looking at producing bioenergy from waste food. And that is really a very exciting prospect because I don't think any of us think it's really ethical that we waste food, and there's a very good use for it. As far as our property is concerned, all of our latest developments at Oakdale West are of sustainable design and then including drought-resistant landscaping, rainwater harvesting, electric vehicle charging, LED lighting and recycling facilities. And currently, we have enough solar power stored out there for 11.6 megawatts, which is equivalent to taking about 7,500 cars off the road. Now looking at the asset growth and shareholder returns. We've aimed to do this by having sustained asset growth and a steady increasing dividend. By achieving these, we've been able to outperform the other -- many other companies on the share market over the longer term. So over the last 20 years, there was only one year when we didn't increase the net asset backing of the company. And so during that period of time, the share price -- the net tangible assets, the share price has grown from $4.13 to $19.79, almost $20. So it's 8% compound around over that period of time. The net tangible asset doesn't recognize the full market value of our assets. So for example, property that's held outside the property trust is held at the original acquisition price. And the value of our investments, because they're equity accounted rather than taking the market price, the book value is below what the market price is. So our investment in Washington H. Soul Pattinson and Fastbrick have a market value of over $2.7 billion. Our interest in the 2 property trusts has combined net asset value of $2.2 billion. And the Building Products' net tangible asset in Australia and North America, $577 million. And there's 3 parcels of land we've identified that have "as is where is" market value of $461 million. We have net debt of $595 million, giving us an inferred current asset backing of $5.4 billion, or approximately $35 a share. So when we look at the last 5 years, there's been significant increase in our asset value over that period of time. And that's come from us expanding internationally in our Building Products business, where we become the largest brickmaker in the Northeast and Midwest regions of the United States. We've completed a number of significant upgrades across our plants and consolidated our operations. In Australia, we've had a major CapEx program. We've invested close to $300 million and built and now commissioned the most advanced masonry plant in Australia. And as I speak today, we're in the process of commissioning the most advanced brick plant in the world. We have moved ourselves from some areas where we're not getting adequate returns, and that includes Auswest Timbers and Austral Precast, which has allowed us to focus more and more attractive opportunities. Just moving on to dividends. We're proud of our history of dividends. And over some 46 years, we've either -- 47 years, sustained or increased their dividend. Quite impressive. When you compare that to most other building product companies in Australia, I don't think we have any equal in that regard. In this year, dividends were increased. So this half, the dividends were increased $0.01, or by 5%, to $0.23. That will be -- the record date for that will be 11th of April and paid on the 2nd of May. Looking at the shareholder returns. It's quite an impressive graph. But now it is exceeded by -- Soul Pattinson is even more impressive graph, a 10% compound for 20 years. So it's very impressive, but it exceeds the All Ords accumulation at 3, 5, 10, 15 and 20 years. So $1,000 invested in 2003 would be worth $7,000 in the period. Now turning to the highlights for the period. It was a very strong performance once again, a record first half profit of $410 million, up 24% on the prior period. The Property Trust was one of the standout part of that with a return of $484 million, and the value of our shareholding in Washington H. Soul Pattinson also increased by $285 million. As I mentioned, we have completed major capital investments, both in Australia and North America. The size of our asset base has doubled in 5 years. Looking at some of the key numbers in there, the EBITDA from the operations was $607 million, up 25%. The profit from the -- the underlying profit after tax was up 24% to $410 million, and that translates into $2.69 per share. Including the impact of significant items, the headline was down 38% to $354 million. Part of that was because in the prior year, we had the very large one-off of the Milton transaction with sales. Now looking at the divisional review. There are 4 parts to Brickworks, which I'm sure most of you are aware: the Property, Investments, Building Products Australia, Building Products North America. Just in case some of you are not aware, we talked about the Property Trust. The actual fact, there's many, many property trusts, but they basically fall into 2 categories. So they're 50-50 joint venture with Goodman and the Brickworks Manufacturing Trust, where we own 50.1%. The only difference between them really is the fact that the latter, we're the tenant. But moving forward, that might remain the case because there are properties within those trusts, which can be developed and there'll be most probably developed and leased to external parties. Outside of that, we have approximately another 5,000 acres of land. Most of that is in regional areas. So it was another outstanding period with an EBIT of $453 million. The highlight was that we moved the Oakdale East Stage 2 into the JV Trust for $301 million. That delivered a profit of $263 million. Our development in the trust continued with a number of facilities completed during the period, and that delivered a development profit of $54 million. That wasn't the only profit from those assets because under a change in accounting standards we had, where the building has passed 80%, we do take up approximately 80% of the profit in advance. So the overall profit of that large number of buildings we had was significantly more than that. But a major highlight for us. We've now exceeded 1 million meters -- square meters of leased area within the trust. Total rental income continues to grow and was up 47% to $25 million, and that includes the $5 million contribution from the Manufacturing Trust. And I'll talk a little bit more about in a moment about the rental income because some of those properties just came in during the period, you haven't seen a full year's rent on them. And of course, some of them have lease-free periods, and that takes a while for it all to kick in. So total value of leased assets held across the Property Trust was almost $5 billion at the end of the period. Trust also holds a further $772 million worth of land which is currently under development. Most of that, of course, is in the Oakdale East. We just moved in and some of that's remaining in Oakdale West. After including borrowings of $1.2 billion, total net asset value was almost $4.5 billion, and our half share of that is at $2.2 billion, as I mentioned. More importantly, when we put out our lease in, there was the potential for us to take cash out that period of time. But it was decided to leave the those funds within the trust, avoiding us to take in construction finance when we build out that property. But the outcome of that was that the gearing and the trust has now fallen again down to, I think, a real 21%. There's a photo of the Oakdale East. The Stage 1 is the area on the right, and blue, you can see our manufacturing factory and an office and warehouse we have there ourselves and 3 other tenants. And to the left, the further you can see Plant 3, which is in the process of being decommissioned as we speak, and the pit area behind it, which is in the process of being rehabilitated. And right at the top of the screen, just in front of the reservoir, you can see Plant 2 where we're building this new state-of-the-art facility. Now we always get asked every period what's the future outlook for the trust. And it's ongoing. It's a living operation. There's always something happening, either finishing a job or commencing a new pre-lease. So we look at -- that sort of graph tries to show a waterfall chart where it's all going. The current annualized rent is $178 million, and that exceeds the run rate because of what I said before because of the delay in the rent coming through and getting a full year rent. When all those facilities in Oakdale West come through, there will be a combined $32 million rent coming from them. So growth in the future years. So if we complete the balance of Oakdale West, that will deliver an additional $20 million to $25 million a year rent, gross rent, that is, and an additional $0.5 billion in assets. And when we built out and developed Oakdale East, it will deliver approximately $40 million to $45 million a year in rent and about $1 billion in assets. Now in addition to that, and one other area where I get lots of questions about is -- it was always about cap rates, but rents have increased quite dramatically. Now not all of -- some of our rents are on inflation-based increases, but others are on fixed rates. And as those leases roll over and they've got to come to market, well, then they've got to come and meet the market rate. So within the Trust, currently, we believe that the overall rent is about 20% to 25% below the current market rate, give you some idea how much the market rate has increased. So potentially, there's an uplift of about $35 million to $40 million coming through as they are released. So when we -- if we were to complete those Oakdale East to Oakdale West, as I mentioned, will give us -- on top of the other properties, give us a total rent increasing for more than $275 million a year, it's gross and the assets exceeding $6.4 billion. On top of that, we have a number of parcels of land, as I mentioned, inside the Manufacturing Trust, one at Yatala, for example, where there's potential to do future development, and we'll work our way through those steadily. And as I mentioned before, there's 3 identified properties outside the Trust, which we think we have great potential to bring into the trust, and they are the Craigieburn site in Victoria, the Horsley Park site in New South Wales here and the Mid-Atlantic site in Pennsylvania. I'll quickly look at Investments because I know most of you are staying here for the Washington H. Soul Pattinson presentation a bit later on. Our main investment, of course, is a 26% shareholding in WHSP. During the period, they delivered underlying contribution of $100 million, which is up 37% and they delivered a cash dividend of $55 million, which was up 61%. And the combined market value of those investments is $2.732 billion. I might just jump over to the next slide because I know we'll talking to that soon. And so I'll now hand over to Mark, who will run you through the Building Products.

Thanks, Lindsay. In Australia, building commencements declined significantly in the first half of the 2023 financial year in response to rising interest rates and a reducing pipeline of work from the homebuilder program. Nationally, detached houses commencements were down 18%, with relatively consistent declines across all states. Although commencements have now declined significantly from the recent peak, there remains a healthy pipeline of projects under construction. During the upturn, building time lines 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 6 months or more. Looking across the states, residential housing activity has been weakest in Western Australia, with detached house and multiresidential commencements down 30% and 34%, respectively. The major east coast states have typically seen declines in the range of 10% to 20%. Next slide. Thanks, [ Bob ]. Despite the reduced commencement, sales remain resilient with revenue for the half, up 11% to $364 million. Increases in Austral Bricks and concrete products were partially offset by a decline in Bristile Roofing. EBIT was $25 million for the period, and EBITDA was $50 million, down 6%. The decrease in earnings were primarily due to the decline in Bristile Roofing and Austral Bricks Western Australia. Most of the business units recorded improved earnings. The launch of the Brickworks manufacturing trust resulted in a negative $2 million impact to EBIT compared to the prior period. Looking more closely at our business unit profit. Within Austral Bricks, revenue and earnings increased. Higher earnings in New South Wales and Victoria were partially offset by a decline in Western Australia and South Australia. As Lindsay mentioned, construction of the new brick plant in Horsley Park in Sydney will be completed in the coming months, and hopefully, the kiln will be lit mid-April. Sales volume in Western Australia was sharply lower as a result of the slowdown in building activity and the loss of key accounts in that market following attempted repeated increases to increase margins. As a result, production was reduced to just one plant at Cardup with the Bellevue facility closed in November. A detailed review of future options in the state is underway, including a potential business sale or exit. Advanced Cladding Systems, a new business system unit within Austral Bricks was launched during the period. This business will focus on commercializing thin-brick cladding systems, a product category that is experiencing growing demand, particularly in the high-rise commercial and multi-residential segments, and we do sell a lot of thin brick and wall systems in the United States. Concrete product earnings significantly increased compared to prior corresponding periods with Austral Masonry and Southern Cross Cement both delivering improved results. Within Austral Masonry, commissioning of the Oakdale East plant in Sydney was completed during the period. Performance of the plant has been pleasing, with product cycle times and plant efficiency progressively improving during the half. The reduced earnings within Bristile Roofing were primarily attributable to lower sales volume in Victoria and New South Wales. Across the country, trade shortages remain a significant issue for both tile and metal roof installations and continue to impact the ability to meet market demand. Sales of premium imported terracotta tiles were lower, with higher shipping rates and extreme energy prices in Europe adversely impacting unit results. These supply chain issues are now easing. Just switching to North America, where activity has been mixed during the period, varying significantly by region and segment. Across the country, the total value of the building activity commenced was up 18% compared to prior period. a 55% increase in nonresidential and a 9% increase in the multi-residential was offset by a 25% reduction in single-family commencements. As the graph there highlights, our key regional exposure in the is in the Midwest and the Northeast. Combined, these 2 regions will make up around 80% of our total sales revenue. Building activity in these regions was relatively consistent with the rest of the country, with increased activity in nonresidential building offset by weakness in the single family market. Sales revenue was up 18% to $220 million for the half. The uplift in revenue was driven primarily by strong growth in sales to the multifamily residential segment and through the vertically integrated retail division that we've renamed and rebranded Brickworks Supply. Retail sales were further supported by a small acquisition of Washington D.C. Brick distributor Capital Brick in February of 2022. EBITDA was up 16% to $14 million. The prior corresponding period included a small benefit in relation to property sales, including this, EBITDA was up by 24%. Margins continue to be impacted by labor constraints similar to here in Australia, resulting in higher wages to attract and retain staff. In addition, other cost pressures are persisting across the supply chain, including a significant increase in transportation and mining costs. A larger proportion of sales to the residential segment was pleasing in Texas, but typically base range are at lower prices and had an adverse impact on our margin. Despite these challenges, the business continues to make progress on key strategic priorities. Over the past 5 years, we've undertaken a plant rationalization program that's seen the number of brick operating plants reduced from 16 to 8. The program continued during the half with the closure of our 1955 kiln in Caledonia, in Ohio, with the output transferred to plants in Pittsburgh and also to Iberia, in Ohio. Extensive upgrades are now complete at Sergeant Bluff, and in our Adel plant, the second kiln is coming online over the next couple of months in Iowa. In addition, production of our handmade and thin bricks were consolidated from our old York factory to our Mid-Atlantic site and Pittsburgh plants, respectively, both in Pennsylvania. The picture on screen is a college at Vanderbilt University in Nashville, Tennessee. It looks like a picture from the past, but that was only just completed, and we supplies 800,000 bricks from our Mid-Atlantic plant, which is a terrific job. And this is the style of the universities and the schools that we get across America. Unlike Australia, most schools are 1.2 million to 1.4 million premium bricks. Following numerous acquisitions, the store networks now comprise of 25 locations. During the period, all stores have been unified under one brand, Brickworks Supply, with locations, market strategy and product range fully aligned. In October, we executed a supply agreement with Brickability for the sale bricks into the UK market. The 10-year supply agreement includes a minimum purchase of 10 million bricks per year and will be supplied out of our factory where we're commissioning at Rocky -- a place called Rocky Ridge, which is up near Camp David, in Maryland. And we'll transport those bricks out of the Port of Baltimore and, hopefully, they'll be headed across early in the new year. The U.K. market is a very brick-intensive market, with about 2 billion bricks per year produced and about 1 billion bricks per year imported. And with that, I'll hand over to Grant for the financials. Thank you.

Thank you, Mark. As Lindsay mentioned, total underlying group EBITDA for the half was $607 million, up 25%. After depreciation and amortization, the underlying group EBIT was up 26% to $569 million. Total borrowing costs of $23 million, and tax was $136 million. This resulted in an underlying net profit after tax from continuing operations of $410 million, up 24%. Significant items decreased net profit after tax by $48 million, and I'll discuss that a bit more in detail in a moment. In addition, discontinued operations contributed an after-tax loss of $7 million for the period, mainly related to noncash impairment of assets and closure costs within the Austral Precast business. This resulted in a statutory net profit after tax of $354 million for the half. Turning to significant items. The table on the screen shows our significant items in more detail. Obviously the largest of those is in relation to the noncash impairment of Austral Bricks Western Australia for $32 million post tax. This follows our impairment testing process as part of the half and primarily comprises impairments to plant and equipment and right-of-use assets. The impairment is based on our reassessment of the outlook for the business, which deteriorated significantly over the past 6 months, as alluded to by Mark earlier. We also had plant relocation and commissioning costs of $8 million, mainly related to commissioning of both the Oakdale East masonry plant, so the valuated side of that plant, and the Horsley brick plant at -- the new plant too at Horsley Park. We also had $3 million in restructuring and site closure costs mainly in relation to the closure of Bellevue late in the last calendar year. We also had the standard share of significant items for our holdings in Soul's and FBR. Turning to cash flow. The total operating cash flow for the half was $46 million, down from $63 million in the prior corresponding period. Cash generation was adversely impacted by inventory build within Building Products operations, the plant commissioning costs that I talked about earlier and higher interest costs in the period. CapEx of $56 million was incurred, mainly related to the construction of the new brick plant in Western Sydney. That major capital program has been going on over the past few years is now nearing its completion, and dividend payments of $62 million would be made for the half. On to key financial indicators. As Lindsay mentioned, net tangible assets per share was up 8% over the period to $19.79 a share. Shareholders' equity increased by $271 million to over $3.5 billion, which represents $23.19 a share. Underlying return on shareholders' equity was 23% on an annualized basis, in line with financial year 2022. Net debt increased to $595 million, up by $102 million over the period. Taking into account increased equity, gearing was only up marginally to 17%. Interest cover is very conservative at 23x. We currently have around $340 million in funding headroom based on committed debt facilities and significant headroom within our existing bank covenants. And I'll now hand back to Lindsay to discuss the outlook.

Thanks, Mark and Grant. Well, I think really importantly, that within our property trust, all of our warehouses are fully rendered. We have a development pipeline, and we have strong demand. We expect significant increases in rental income over the coming years, as I explained to you. I've also mentioned that we have a number of properties which we believe that we can move into the trust, including the Mid-Atlantic site in Pennsylvania, Craigieburn site in Victoria. Across the Building Products, we're confident sales will remain fairly strong during the second half. However, there's no doubt that in the second half of the calendar year, there will be a slowdown. Interesting though, however, when you look at the tightness of the rental vacancy market, I don't know if any of you sort of drive around the city on a weekend, but you'll see lines of people, 50 or 100 meters long, trying to get an apartment. And most single-bedroom apartments have gone up about $300 or $400 a week to about $1,000 a week. So that is running counter to the interest rates. And so there's going to be some friction at that point. If you're wondering where the demand came from, there was a very slight change in the occupation rate during the pandemic. Prior to the pandemic, the occupation rate in Australia was about 2.59 people in Australia, and it fell to 2.50. That 0.09 difference is 160,000 dwellings. On top of that, in the last 12 months, we've had 250,000 people return to Australia who need another 100,000 dwellings. So in the space of about 12 months, we're 0.25 million dwellings short in Australia. So I can't see that the housing starts are going to stay down along. I think once the interest rates stabilize, we're going to see a strong return to demand. And that's exactly what we're seeing in the U.S., where the main interest rate is the 30-year mortgage rate. It's now been stable 4 or 5 months, and we've seen a pickup in demand. We're seeing a stabilization in the drop-off there. So that's in residential. But for us, of course, in North America, we're very much focused on commercial. And when I say commercial, I'm not talking about office building type commercial, which is most probably the one area that we're not in. But I'm talking about commercial as in multi-res buildings is our main area we're going. But also, as Mark mentioned, universities, schools, fast food chains, various sporting stadiums and whatever, that's the sort of work that we've talked about when we're in commercial. And we're seeing no letup on that. The architects are very -- the billing index that they have over there is very strong. And we're seeing the same situation here in Australia. Commercial work in Australia and the United States is strong, and we've seen no letup in that area at all. And of course, we're very confident of Washington H. Soul Pattinson's future prospects. And I think, therefore, we're going to see significant growth in our assets over the longer term and a continuation of our ability to increase dividends. So I guess, Chairman, we'll take -- go to questions, if there's any questions. How are we handling the questions from online? We've got one right here. So, thank you, Chair. Yes. Just wait, there's a mic coming your way.

Lee Power at UBS. I'm not sure Lindsay or Mark whether -- who wants to answer this. But just a comment around kind of continued cost pressures. Can you give us an idea of what rig pricing you have in the market in Australia at the moment. And then going on like thinking on a longer-term basis, so once the pipeline is exhausted, we're obviously in a kind of a higher cost environment. How do you think those 2 match as volumes come off and input costs potentially stay higher? How do you think pricing plays out in that environment?

Yes. First of all, in relation to historic you saw, we basically increased 11%, our turnover, which was mainly -- the volume was constrained by all the bottleneck. So that was mainly our price rise and just wasn't quite enough. So that tells you what the inflation was in the last 12 months. The areas where we saw that period is clearly wages. I was talking earlier today that we'll pay most like electricians and bidders around the $30 an hour. Now the only ones we can get a contract is at $90 an hour. And a lot of -- we've got plants -- a couple of plants in Australia, a couple of plants in America, where even at $90 an hour, we can't get trades people to maintain the plants. So that is a real problem. So the nonperformance of those plants or not running is a cost as well. We had thought that the areas that were a problem last year, like clays of stains, oxides had steadied up a little bit, and that's generally the case. But this year, in the last 6 months, we've seen another wave. I think some of the material companies were a bit slow in responding I don't want to mention any names or will know names, but it's a bit slower in responding to the increase in costs coming through when we've seen a dramatic lift in the last 6 months in aggregate sand, cement, which is even supplying ourself cement's gone up. So we're seeing those sort of products come through with increases. The other one, which is heads here in Australia, this year, this calendar year, electricity, a net 100%, not 10% or 20%, 100%. So these are big increases to take. So we've kept our foot on the price rise pedal and putting through another high single-digit price rise. It varies in timing and magnitude, depending on the business and the state. But we have no choice. We have to push that through. It's the people that pay the price or we don't supply. It's just that easy. There can't be any other way about it because as you've seen, the minute we don't get adequate returns, the auditors are going to come up with the red text and put it through our books. So you have to get the return. You just have to put the prices up, you got no choice.

And then Craigieburn, can you just give us an idea of how we should be thinking about that in terms of timing?

And Megan is right behind you there. But we've had it now at 15 years. But we were trying to get it into resi. And they just -- the government just thought it wasn't big enough to stand on its own as a suburb. And in Victoria, they tend to sort of release suburbs. So we sort of come across to commercial. We're working with Goodman through the issues there. I don't know, do you want to add anything to that, Megan, or no? We're working on it, okay? Yes. But I mean it's getting surrounded. I mean it's -- days are going to come. I mean it's like all the things we've managed to sort of get the timing sort of right in the end, but I think, hopefully, we've got better prospects on the Mid-Atlantic side in the next 12 months, and maybe, Craigieburn, a year or 2 after that. You're right -- second row here. Thanks [ Mel ].

Well done again, Lindsay. Just on those 2 properties, Craigieburn and Mid-Atlantic, what are they worth?

What we said in there that there's a combined value 400 and -- $460 million, those 3 properties, as is where is. Yes.

$460 million.

$460 million. Yes, it includes Horsley Park. Yes.

Right. In terms of the new kiln that's going to be here in Sydney, how much is that going to add to efficiency?

Look, good point. There was 2 kilns -- 1 kiln is replacing 2 kilns. So that's a good start, right? But one of the kilns was our very best kiln and was originally put in to run at about -- I'm talking cars per day. I think most have been -- [ prefer ] cars per day. Just put it to run 36 cars. For most of its life, it'll run at 44. Then in the last 5 or 10 years, we made a brick slide, we did a few other things we've got up to 60 cars a day. So its fuel consumption was just incredible because it was running so fast. There's losses through the walls of fixed. There are more input through the tunnel work. But this skill is going to be pretty quick. But it might take us a year or 2 before we catch up with other kilns. But what we are doing more is putting in more -- particularly in Queensland, we're using like sawdust flour, wood flour. It comes out of, say, like a door plant, so it's waste material. And we call that onboard fuel. So we're starting to get some amazingly low fuel consumptions out of these kilns.

And in relation to your investment in FBR, what's your intention there? You've got 19.9%. Now...

I can't tell you.

Good try. And just getting back to Western Australia. The [ backyard ] thing has never been sold. So presumably, are you saying that market is basically a write-off in the next 5 years?

Well, look, it's hard for us to see a way forward. We didn't agree with the ACCC approving them to purchase Midland, which gave them 80% market share. So to compete against a company with that level of market share and vertically integrated because you can't contest their own companies, it's a very difficult place to be in. And we really got to the point there were almost subscale. But having said that, their own performance, they've lost a lot of money in the last 3 or 4 years. They're running negative cash. They stopped taking orders for new houses. They've got 3,000 houses to build, most of which they're going to build at a loss. So I would take that here. I think their whole market is in a very tough place at the moment. Okay. How are we handling questions online? Are you just going to read them out? Or is this -- we've got one more here. Sorry.

Just a quick question around volume and scenario planning and how you'd essentially adjust the production profile of the business should you have a decline to manage operating leverage, Lindsay, perhaps in Australia as well as in the U.S., if you could just give us your sense of how you're planning for the next 6 to 12 months.

Well, at the moment, believe it or not, our brick sales this month exceed where they were a year ago. I think about that because the bottlenecks are coming out of the system. So the run rate of the builders is going quicker. So that's the first thing. So we haven't seen any downturn as yet. That's the first point. The second thing we're about to swap our biggest plant, right, which is now going offline as we talk. My biggest concern is not reducing production, my biggest concern today is that I don't run out over the next sort of 3 months as I get the new plant up because the new plant is likely to take 3 to 6 months to really get rolling. So we're watching that. And we have taken such a big capacity to because we're going to demise that plant, so we can develop East. So there's a bit -- that's our main concern at the moment. So I'm not worried about stock at this point in time. But we're also very lucky and I've explained this to you before, when you've got 9 out of 10 plants, we're talking bricks on the East Coast, if we don't quite sell enough output, well, what we do -- first of all, it is maintenance. A lot of them will run 5, 6, 7 years. So you take them off and do some maintenance, and that takes 10% of your production. But then if I'm selling trouble, we've got too much production, we've only got to take one of those plants offline on the whole east coast, and then we just shuffle it around to keep -- so the remaining 9. We got 10, take one off, the remaining still run at 100% capacity. So it's not really such a concern. The same thing goes intimation plants. We take one off, there's a network of 10 or 15 of them, you take one off and it brings all the others back to full capacity.

And the same in the U.S.?

In the U.S., the same thing. I think you've seen it. Mark said, we've come from 16 to 8. If we take another one off, we'll balance it up. But we're still in the transition there. They had a lot of plants when we bought the business originally, a lot of plants running 9 months of the year at 60% output. And bit by bit, every year, we've run more plants through winter and running them harder and longer. And so we still -- that process is still underway, almost complete, but still underway. So...

And how are you experiencing the implications of 44% of your business being exposed to single family and what's going on in that market?

Yes. Well, I think where the single family is. I mean one of the big growth areas for us has been Texas, Oklahoma. Mark can talk more about this. But all the people coming in there are coming out -- they're leaving California to get away from the taxes because they want to go to Texas which has low taxes. They're not first-time buyers. They're selling a home without significant equity, and they're buying a house. So they're not particularly worried about the cost of the mortgage rates. And remember, as I said, the mortgage rate as of this morning was -- 30-year mortgage rate in the U.S. is 6.6% and has been at about that level now for about 5 months. And with all the stuff that happened in the last 24 hours, that 30-year rate didn't move at all. So it's very stable. That's why you're seeing people starting to return to that market to stabilize. So I don't think we've got -- at this point of time, I mean I don't know what the future holds, but at this point in time, we don't anticipate a GFC-style downturn. Thanks, [ Mel ]. Down the front again.

Sorry?

We'll get to that in a second.

With your agreement to supply 10 million bricks into the U.K., what's the current capacity in America? Can you easily meet that 10 million?

We're bringing on -- as Mark mentioned, we're bringing on the Rocky Ridge plant at about $35 million. And it's also going to make a couple of specialist products for us. And we'll also be taking approximately $10 million, $12 million out of Hanley and Pittsburgh. Yes.

And what about further expansion in the U.S.?

Further -- and further acquisitions, you mean?

Yes.

No, I think for the time being, we're just happy to sit pat. We've got enough on our plate. Have we got any questions online now?

A few questions online. Thanks, Lindsay. First one from James Casey. With the capital expenditure for Horsley Park nearing completion, what are your CapEx requirements over the next 2 years?

Yes. Well, I think we've mentioned that, that cost of that plant ran significantly over and has also run significantly late. I'm very happy, though, that we've now built it. To start that project today will even cost you more money. So we've got to commission those plants, and so we're throttling back our CapEx. So CapEx will be a depreciation or less for the next few years, while we just sort of digest what we've been doing in the last few.

Next one from Liam Schofield. Can you please comment on the cap rate movement across the industrial JV and the manufacturing JV relative to revaluation gains, i.e., cap rates up, reval gain up?

Yes, I think that was 35 points, Megan, or up 35 points, but the rents exceeded that. So that's why we end up with a revaluation profit of, remind me the number.

$114 million.

We had $114 million in revaluation profits basically because -- that includes the development profit in that number or not? Is it just the reval? Reval. So put it this way, the growth in rents outpaced the growth in the cap rate expansion. And just to make sort of that point just a little bit clearer, when the valuer looks at it, they're looking at the transaction value of equipment buildings. They don't necessarily look at what your particular rent that you're receiving on that building. They're looking at what that building would rent for if it was at market rent. So at the moment, as I mentioned before, we have -- we're 20% to 25% underrented on many of our properties. So I mean, it depends on what you view as long-term view of interest rates. But if interest rates -- no one can predict the future, but if interest rates as forecast peter out with another 25 or 50 points or then the rental growth has exceeded in that period. Next question.

What sort of market share do you have in the brick market in America?

What's that figure?

7.7% nationally. But in our key markets like New York, it's 70% and in Philadelphia is 80%. Illinois is...

Yes. I'll have to repeat so they'll hear it online. Yes. So nationally, it's about 7%. But because we're focused in certain areas, the key markets: New York, it's like 70%; Chicago, it's 80%; Philadelphia, it's a similar sort of number. So in the areas we operate, we have exceptionally high market shares. But of course, we don't operate in the volume housing brick markets of Texas across to the Carolinas.

Has the Board discussed the merits of a buyback?

The Board discusses everything thoroughly, but buybacks have been problematical. Any more questions? I got one down in the front here, please.

Anderson Chow from Jarden. Just related to sort of the capital management question. So our CapEx seems to sort of -- is about picking out -- it's about to pick up property. We're seeing very strong rental to come as we guided for the next 5 years. And you just mentioned your buyback probably a bit difficult. Should we be expecting ordinary dividend to -- it's a fantastic trade record of 47 years increase. But should we be expecting ordinary dividend to probably increasing at faster pace or maybe some sort of one-off special dividend, something like that?

Look, generally as a rule of thumb, we look at the dividends we received and the trust earnings to pay them out. And clearly, the trust earnings are going to grow. But we're just -- got it. The next -- there's a couple of things there. First of all, we don't know what's going to happen in the next 12 or 18 months. So we just got to be a bit cautious with what we do as far as the dividend is concerned until we work our way through that. But there is the potential there to continue increasing dividends. I'll be pretty certain about that. But to dramatic increase or special, I'm not sure and not in the next sort of 12 or 18 months. Okay. One more for [ Mel ].

Why does the 6.31 deferred tax liability add to NTA per share. Page 10 of the slides.

One for you, Grant.

I think what you're looking at there is the inferred net assets -- the inferred asset value. And what we've put in is a bridge between inferred asset value and NTA. So what we're saying is the inferred asset value, there's deferred tax associated with the Property Trust primarily. That is not in that inferred asset bridge that we've done, so what we're doing is bridging from balance sheet NTA back to the inferred asset value that's bridged in that slide. So what we're trying to do is just reconcile the two.

Any more questions? Okay. Thank you very much, everyone. Thank you for coming on and listening to the Brickworks story. Thank you.