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Boral profits plateau ahead of forecast growth

The building products manufacturer’s net profit after tax for the year ended 30 June 2016 was $256 million, slightly lower than the $257 million it recorded in the previous corresponding period.

Profits were offset by a $12 million net loss from “significant items” due in part to the resolution of “long term tax matters” relating to its joint venture with American building materials supplier USG.

Profits after tax before significant items showed an eight per cent increase to $268 million, which provided a “greater understanding” of Boral’s performance, according to a company statement.

Earnings before interest and tax (EBIT) and significant items across the group increased 12 per cent to $398 million. The company noted that this was underpinned by improvements in margins, stronger housing activity in the US and continued strength in Australia.

Construction materials and cement – Boral’s largest division – delivered EBIT of $293 million – three per cent lower than the 2015 financial year.

Boral CEO and managing director Mike Kane said the decline was “anticipated” due to lower earnings from property sales, and when property was not taken into account, construction materials and cement’s EBIT actually showed a four per cent increase.

Transition year

Commenting on the Australian construction market, Kane said that the latest financial period had been a “transition year” that had been managed “remarkably well”.

“Major roads and infrastructure projects are clearly ramping up with Boral securing supply to several major projects including NorthConnex in New South Wales, the Gateway Upgrade North in Queensland and the Airport Link in Western Australia,” he said.

“As this sector has been gradually strengthening, the resource boom, including the major LNG (liquefied natural gas) projects, has tapered off. Strong demand from housing activity, however, has helped to ensure a smooth and broadly steady transition.”

Boral’s building products division increased its EBIT 10 per cent year-on-year to $33 million while its gypsum joint venture with USG saw a 27 per cent spike in its EBIT to $179 million.

Speaking about how well the group fared overall, Kane commented, “We have just reported a strong increase in Boral’s profit after tax before significant items to $268 million, even after factoring in $21 million of lower post-tax earnings from property sales.

“The continued growth in Boral’s earnings demonstrates the great work that has been done to improve our cost base, grow margins, and efficiently supply market demand, which continues to be strong in Australia and Asia, and is growing in the USA.”

Future outlook

The end of the current financial year will deliver the first results of the new division Boral Australia, which formed on 1 July when the construction materials and cement and building products divisions amalgamated, as previously reported by Quarry.

Kane said he expected the new division to benefit from a “strong pipeline” of work in the east coast residential markets as well as from rising roads and infrastructure activity, mainly in the second half of the 2016–17 financial year.

Slightly lower earnings as a result of weaker housing markets in South Australia and WA and another fall in property earnings were predicted this financial year; however, they were expected to be “more than offset” by higher EBIT from construction materials and cement as price increases in certain markets take effect from October and November.

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