Disruptions at Boral’s Peppertree Quarry and Berrima cement plant are expected to impact first half-year earnings but the company is buoyed by the imminent onset of major infrastructure projects.
Mike Kane, CEO of the construction materials company, unveiled Boral’s financial results and forecasts for the upcoming year at the group’s annual general meeting on 6 November.
At the event in Sydney, he told shareholders first half EBITDA (earnings before interest, tax, depreciation and amortisation) are projected to drop 5 per cent on last year’s figure to $461 million.
He also repeated a profit forecast announced in August, which stated Boral’s full year net profit (before significant items) could fall between 5 and 15 per cent this year, largely due to lower earnings and higher depreciation charges.
“In Boral Australia we saw lower earnings in the first quarter of trading, with the softer housing market in Australia and delays in infrastructure projects underpinning 8 per cent lower concrete volume relative to last year, and broadly flat asphalt volumes,” Kane said.
Boral also experienced unplanned disruption at its Peppertree Quarry in Sydney in September, which resulted in a week of lost production.
This was exacerbated by two weeks of downtime at the Berrima cement plant, 70km west of Woollongong, due to equipment failures and problems associated with increased use of alternate fuels.
“These issues have been resolved and did not impact customers but they resulted in higher than expected costs,” Kane said.
“Overall, the disruptions at Peppertree and Berrima had an adverse earnings impact of around $10 million, which will come through in the first half results. We have plans to recover these costs over the remainder of the year.
“We expect a first half contribution from property of around $30 million to only partially offset the impact of lower volumes and higher costs, including one-off costs associated with disruptions at Peppertree and Berrima.”
Second half projects
Despite these setbacks, Kane remained confident of a “significant second half skew”. Underpinning this is a contractual agreement to supply concrete and quarry products to the Westgate Tunnel project in Melbourne, which is expected to ramp up next year.
“And in Queensland, we were recently awarded the asphalt work on the new Norfolk Island airport runway and concrete to build the new Queens Wharf, both of which should also benefit later in the second half of the year,” Kane added.
He predicted EBITDA for the second half of 2019-20 would be “broadly similar to the reported second half EBITDA last year.”
Kane, who is expected to stand down from his role within the next two years, concluded the meeting by listing Boral’s progress during his seven-year tenure.
This includes a significant reduction in the recordable injury frequency rate, EBITDA increasing from $473 million to $1.04 billion and net profit before significant items growing from $101 million to $440 million.