Boral is optimistic that renewed construction activity around Australia will raise its fortunes in 2021 after its global operations took a big hit in the 2019-20 financial year.
Boral’s global operations for FY2019-20 have incurred $1.35 billion in impairment charges, including $1.22 billion to its North American operations, and $123 million to its Boral Australia operations.
The company’s North American assessment found that demand uncertainty from COVID-19, along with affected economic and operating conditions, and Boral’s operating performance have all attributed to the $1.22bn in impairment charges.
Boral Australia’s assessment is related to the decline in housing construction, a slowing of infrastructure construction, reduced construction activity in Western Australia and the Northern Territory, impacts caused by recent bushfires on its timber business and further COVID-19 uncertainty.
Boral’s financial results for the year ended 30 June 2020 unveiled the bigger picture to the challenges the company is facing.
Its earnings before interest, tax depreciation and amortisation (EBITDA) was at $710 million, which was down 30 per cent, while its net profit after tax was at $181 million, down 57 per cent from the corresponding period.
Boral enlisted Zlatko Todorcevski as the company’s new chief executive officer, who started his role on 1 July, 2020. Todorcevski said economic and market uncertainty has dampened the company’s performance.
“Boral’s FY2020 results reflect a particularly challenging year. Following the lower than expected first half result from Boral North America, Boral had a difficult start to the second half of FY2020,” he said.
“Boral Australia was impacted by bushfire and flood-related events in Australia, resulting in significantly lower volumes and higher costs. This was quickly followed by COVID-19 disruptions, resulting in higher costs and production curtailments, which substantially reduced earnings for all divisions.”
The company is predicting less impacts for the 2021 financial year. Todorcevski told The Australian Financial Review that there were encouraging signs in Western Australia, South Australia and parts of regional Victoria. However, Victoria’s second wave of COVID-19 has posed an issue of uncertainty.
“We are experiencing less disruptions in most businesses, providing an opportunity for improved outcomes, however, there is potential for further disruptions and uncertainty remains,” Todorcevski said.
“For example, it is unclear how long Stage 4 lockdowns in Melbourne will continue. At this stage of the lockdown, concrete volumes in our Melbourne metro business are down about 20 per cent relative to last year.”
Boral chairperson Kathryn Fagg said the company’s performance and impairments are disappointing.
“We have taken a substantial impairment which acknowledges the recent under-performance of Boral’s businesses, recognises the current market uncertainty and adopts lower forward volumes than prior expectations,” she said.
“We are disappointed with Boral’s performance and the need to take such a large impairment. However, we are focused on making the right decisions for the company and for shareholders.”
Boral stated it is currently undertaking a board renewal that will see the recruitment of two new directors.
“We are currently recruiting two new directors, one with deep operational experience in the sector and the other with strong finance experience. These new directors will be based in Australia and we expect to make these appointments this year,” Fagg said.
Boral said its impairment charges are non-cash related with the company maintaining a strong liquidity position after impairments.