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Mike Kane: Building products in Australia is a work in progress.
Mike Kane: Building products in Australia is a work in progress.

Boral building products continue to struggle

Following the release of its half-year financial results last week, Boral is banking on the recovery of the US housing market to get it back into the black.
In the six months to 31 December, 2012, Boral reported a net loss of $25.3 million, compared with a net profit of $153 million in the previous corresponding period. Boral reported a net profit of $52.2 million.

Boral lost 4.1 cents a share in the half, down from a profit of 20.4 cents a year earlier, in the wake of a heavy round of restructuring and redundancies, including 700 head office jobs and a further number of production jobs. The total redundancy and restructuring costs equated to $77 million.

Managing director Mike Kane said a recovery in the Australian housing market was difficult to predict as its low volumes led to volatility.

"I've been studying it for a little while and frankly a market that moves anything from between 135,000 and 170,000 (housing starts) doesn't require much adjustment to have rather wild swings in impact on our business," he said.

"The reality is it's come up from a low point of last year. I can't assume it's going to get much better and therefore from most of my analytics around the second half, I have to assume it's steady from probably where we are right now.

"Right now we're molting, and it’s not pretty," Kane told analysts, when discussing the December half results.

Restructuring and redundancies
The company has said that most of the head office cuts will be completed by the end of March. Boral Quarries in Yallourn North closed on 8 February, with the quarry’s previous workforce of nine having either found other work, been transferred internally or in a “transition” process with Boral.

Boral’s Victorian head office in Port Melbourne, brick plants in Scoresby and Thomastown will be among others targeted by the cuts.

Announcement of these closures comes after Boral slashed 90 jobs at its cement plant in Waurn Ponds in Victoria in December, with the site to shut down indefinitely in April.

To revive earnings of the cement division, Boral will halt the production of clinker, an intermediate product in making cement, at Waurn Ponds, with further changes likely.

“Around one-third of the positions are coming out of Boral's Construction Materials division, which includes quarries, as well as concrete, asphalt and transport,” said Kylie FitzGerald, Boral’s group communications and investor relations manager.

In an interview with The Latrobe Valley Express, Fitzgerald said the Yallourn North quarry operation had been “unique” and “was not really our core business”. The business had been up for sale for some time due to declining sales and its workforce had been advised in December of Boral’s intentions to exit the operation if it was not sold. She added that if the quarry were to receive “significant orders” in the future, then it would be possible to reopen Yallourn North on a short-term basis with a skeleton staff.

Cement, building products struggle
Kane expressed his regret that Boral’s core businesses were continuing to struggle. Although Construction Materials delivered a solid 25 per cent improvement in EBIT, Cement had a 15 per cent decline and Building Products reported an $18 million first half loss, following a loss of $11 million in the second half of the previous year.

"In cement, we will continue to be disappointed," Kane said. "The dynamics are changing - and changing rapidly. With import (price) parity the ceiling, a low import price out of Asia and no price leverage, the halcyon days of the past won't come back. We're taking costs out on a phased basis.

"We're on a journey. We would like a new import facility, but I don't have the balance sheet to support that."

As a result, Boral is looking to swap product with competitors to compete with imports, as a first step.

Boral has signalled confidence in its future, opting to pay an interim dividend of five cents a share, down from 7.5 cents previously.

The main drag on earnings remains buildings products such as bricks, timber and windows, along with cement.

In the US, Boral is still losing money, although it is forecasting a steady recovery in housing starts, which will help lift this business back to profitability.

"Building products in Australia is a work in progress," Kane said. In the December half, gypsum unit earnings in Australia were hurt by competitor pricing pressure, which prompted a "short and sharp" price response from Boral.

"I think that's behind us now,” he said.

An ongoing concern is the prospective level of future demand once the bulk of the construction activity on a series of export gas projects in Queensland winds down from next financial year.

However, replacement projects such as the large Barangaroo redevelopment in central Sydney, the Wheatstone export gas project in Western Australia and work at Port Botany, also in Sydney, will sustain activity.

Sources: Boral, The Age, The Australian, The Latrobe Valley Express

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Tuesday, 20 August, 2019 3:23pm
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