The collective message from building materials supplier Boral and GWA International yesterday was that the year ahead will be challenging for the Australian property market, as both companies reported a fall in annual profits.
Yesterday, Boral posted a net profit of $362.4 million for year ending June 30, 2006 – a fall of 2% when compared $370 million in 2005.
Boral chief executive Rod Pearse said whilst Boral’s full year profit result reflects a higher cost environment and the impacts of an Australian housing downturn, favourable pricing outcomes, operational cost savings, a very strong US result together with benefits of growth initiatives contributed to a solid result.
“Despite continued softening in Australian dwellings and higher energy and fuel-related costs across the group, Boral’s operating performance in 2005/06 was solid. The full year profit benefited from effective margin management and growth benefits but was adversely impacted by $15 million of one-off commissioning / production costs associated with the Waurn Ponds cement and Galong lime kilns.
“In Australia, Boral’s construction materials businesses benefited from stronger non-dwelling activity and major projects, however, Boral’s building products businesses continued to experience the negative impacts of the cyclical downturn in Australian dwellings (particularly in New South Wales where detached dwelling approvals have reached a 30-year low),” he added.
GWA has also blamed the NSW property market, which managing director Peter Crowley said was the “most difficult market” in the year.
GWA posted a net profit $56.8 million for the year to June 30, 2006 – a fall of 11% when compared to $63.8 million in 2005. The company’s revenue eased 1.1% to $619.98 million in 2006.
GWA said is now looking to cut costs a further 145 redundancies expected by the end of September. Last year, staff numbers were cut from 2,474 to 2,226 by year end.
“I expect the 2006/2007 financial year to continue to be challenging, however, each of the group’s businesses is improving its market competitiveness and creating growth opportunities.
“Further reorganization costs may reduce profit for the group during 2006/07. However, such costs will make our businesses more efficient in the face of subdued demand in the new dwelling construction and renovation sectors – affected by continued interest rate rises and higher oil and metals prices respectively.” he added.
Crowley said the company’s aim for the 2006/07 year is to achieve a trading EBIT above the 2005/06 result of$95.2 million.
The tune was not much different from Boral.
“It is difficult for us to forecast macro-economic drivers over the next twelve months. Nevertheless, we expect Australian dwelling commencements to be around 140,000 to 145,000, which are well below underlying demand levels of around 160,000 to 165,000 starts.
“We anticipate however, continued strong activity in Australian non-dwellings and infrastructure activity,” Pearse said.
“In the USA, we expect some housing-related market softening from current record levels of activity but non-residential activity should lift. Volumes should remain at reasonably strong levels and price increases and cost reduction initiatives should continue to offset natural gas and other cost escalations,”
Pearse said whilst growth initiatives will continue to progressively deliver improved benefits, the company expects continued fuel-related cost increases in all markets and associated margin pressures.
Operating cost improvements from performance enhancement programs of at least 3% are expected to continue to largely offset non-fuel related inflation impacts in FY2007.
“In the year ahead, we expect Boral’s EBITDA to improve. However, interest expense and depreciation charges will also be higher. Overall, subject to interest rates and activity levels in the USA and Australia, we expect that Boral’s net profit after tax in FY2007 will be comparable to the $362 million reported for FY2006,” Pearse concluded.
Boral announced a fully franked final dividend of 17 cents per share, in line with the previous corresponding period.
GWA declared a final dividend of eight cents per share, fully franked, and a special dividend of 3.5 cents per share bringing the full year dividend to 21.5 cents.
Boral shares fell 31 cents to close at $6.89 and GWA shares closed 2 cents higher at $2.92.
By Adam Parsons
