Adelaide Brighton is the third largest cement producer in Australia, with around a 25 per cent market share. It also manufactures and distributes lime, ready-mixed concrete and concrete products. Its joint ventures include Independent Cement and Lime in Victoria and Sunstate Cement in Queensland.
The company is currently constrained by an unsteady local recovery in housing construction, as well as the reduction in mining project expenditure. However, its Austen quarry is viewed as a key asset that could deliver improved results for the company. Austen was commissioned in 2007 and was part of Adelaide Brighton’s acquisition of Hy-Tec.
Austen Quarry produces mainly road base product and the company is confident there is an earnings upside of up to $5 million from the quarry because the location is more favourable relative to peers.
Austen is at Hartley, at the western base of the Blue Mountains. Competitor Boral’s Peppertree is twice as far from the key western Sydney market.
The company’s position in the Sydney aggregates market also has the potential to improve in 2014, as the exhaustion of Boral and Holcim’s Penrith Lakes operations mean Austen is no longer at a freight disadvantage.
These companies will be sourcing aggregates from further south, at Marulan, in 2014 and will need to increase prices to cover capital investment and higher transportation costs. This should allow Adelaide Brighton to increase Austen prices and so improve margins.
The quarry has spare volume capacity and it is expected that when the market picks up, the company will be ready with ample supply.
The quarry currently sells around 500,000 tonnes of aggregates each year, which is about 50 per cent of its approved volumes and 25 per cent of Adelaide Brighton’s annual aggregate sales.
Adelaide Brighton advised that its FY13 earnings would be similar, or lower than, FY12. The results will be affected by the carbon tax, weaknesses in Victorian and southeast Queensland residential demand and a decline in earnings from joint ventures.
Despite the softness for FY13, the outlook for the following financial year is better. An expected improvement in the aggregates market, the potential for asset sales and the company’s diverse market exposure are seen as positive indicators.
The company is looking to increase its exposure in aggregates via greenfield site sourcing and acquisitions.
Sources: FNArena, Ninemsn