Load & Haul

Boral braces for headwinds before infrastructure boom

Following the release of the full year financial results to 30 June, 2019, Mike Kane, CEO of the construction materials company, has forecast a weaker profit outlook for the next 12 months, which could see net profit after tax before significant items fall another five to 15 per cent.

A key factor, according to Kane, is an ongoing slowdown in residential construction activity, which won’t be fully offset by increased volumes in infrastructure projects.

However, Kane was positive about the company’s ability to navigate the immediate market headwinds before taking advantage of an imminent infrastructure boom beyond the 2019-20 financial year. Boral reportedly has more than $600 million worth of quarries, in which the company has invested to meet expected demand for the next decade.

{{quote-A:R-W:175-I:2-Q:“Beyond FY2020, Boral is well-placed to deliver medium-term and longer-term growth. We expect continued infrastructure growth in coming years, coupled with a modest downturn in residential construction” -who:Mike Kane, CEO Boral Ltd}}“Beyond FY2020, Boral is well placed to deliver medium-term and longer-term growth,” he said. “In Australia we expect continued infrastructure growth in coming years, coupled with forecasters’ expectations of a more modest downturn in residential construction relative to past cycles.”

Kane’s prediction for the coming year drew an immediate response from investors, with Boral’s Australian Stock Exchange share price falling around 20 per cent to close at $3.94 on the day of the announcement, its lowest since 2013.

The investor sell-off saw $1.2 billion wiped off its sharemarket value, and upped the pressure on the CEO, who revealed he would leave the company some time in the next two years to move back to his native US.

Solid full year results

Meanwhile, in its full year FY2019 results, Boral reported sales revenue for continuing operations of $5.8 billion across the entire company, up four per cent on the year previous. This was in spite of a 15 per cent decline in Australian housing starts and a two per cent decline in the US housing market.

In the past year, the company recorded a six per cent decrease in net profit after tax before amortisation and significant items of $486 million. Net profit after tax before significant items was down seven per cent to $440 million. Full year statutory net profit was $272 million – down 38 per cent – which reflects significant items of $168 million.

“Boral’s full year results demonstrate the benefits of strong infrastructure activity in Australia and the resilience of our underlying businesses, together with implementation of improvement initiatives and cost reduction programs across the company,” Kane said.

“While we have seen a 15 per cent decline in Australian housing starts, lower Australian property earnings and lower than expected growth in North America, revenue from our continuing operations was up four per cent and EBITDA improved two per cent.”

“We also achieved better than expected Headwaters acquisition synergies, delivering $USD71 million ($AUD104 m) in synergies to date, with our four-year synergy target of $USD115 million ($AUD169 m) remaining firmly in sight.

“Our business is not immune to market cycles, or adverse weather, and in response to softer market conditions and extreme rainfall events in the US, we have delivered tangible benefits this year through improvement initiatives and cost reduction programs, with more expected in FY2020.”

Boral has clipped its final dividend payout to 13.5 cents per share (50 per cent franked), from 14 cents a year ago. It will be paid on 1 October, resulting in a full year dividend of 26.5 cents.

On the same day, Boral also announced an agreement with the German business Gebr Knauf to form an expanded 50:50 plasterboard joint venture in Asia, including in China and South East Asia.

The deal will also see Boral return to 100 per cent ownership of the business USG Boral Australia and NZ. Boral's total net investment is $USD441 million ($AUD650 m).


More reading:
Boral to net millions in real estate deal
Homefront success underpins Boral’s increased global earnings
Boral sales bolstered via infrastructure demand
Boral posts profits ahead of increased activity
Boral profits plateau ahead of forecast growth
Boral weathers industry ‘period of transition’

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