Bad market mix weaken Boral results

BUILDING materials supplier Boral Limited is continuing to feel the pain of United States downturn.

The company yesterday reported a profit after tax of $243 million for the year ended June 30 2008, a 19% or $55 million decrease over last year.

Boral’s underlying FY08 profit after tax was $247 million – 17% lower than the prior year’s result of $298 million.

Boral’s chief executive Rod Pearse said that the uplift in earnings from Boral’s Australian operations was extremely important in offsetting some of the decline in US earnings that occurred as a result of a significant 35% decline in (single family) US housing starts.

“Despite continued low levels of activity in the Australian housing market, Boral’s Australian EBITDA was up 9% and accounted for approximately 96% of Boral’s total FY2008 earnings,” he added.

During the year, sales revenue increased 6% to $5.2 billion, reflecting a 13% lift in Australian revenues due to price strength, volume gains and benefits of growth initiatives.

On the other hand, US revenues declined by 24%.

Overall, Boral’s earnings before interest tax depreciation & amortisation declined by 10% to $688 million. Australian EBITDA of $657 million was $52 million (or 9%) higher than the prior year. Offshore EBITDA, however, declined by $A123 million (or 82%) to $A27 million.

EBITDA from construction materials in Australia was up $35 million to $489 million due to strength in non dwellings and infrastructure activity and price increases in most markets. Australian Building Products also delivered an improved result with EBITDA up $17 million to $168 million with strong Queensland and Victorian housing markets offsetting a weaker Western Australia market and continued low levels of activity in New South Wales.

In the US, EBITDA decreased by $A118 million to $A11 million. Plant capacity utilisation is currently around 40% in bricks and less than 30% in concrete roof tiles reflecting the slowdown in market demand. As part of a structured cost reduction program including plant network optimisation, a $US30 million cost savings program is well underway in bricks and a further $US25 million of cost reductions are being delivered in the MonierLifetile concrete roof tile JV. Approximately $US6 million of savings were delivered in bricks in FY2008 and $US10 million in MonierLifetile.

In Asia, Boral’s 50%-owned plasterboard JV, LBGA, delivered a 29% improvement in US dollar earnings, however exchange rate impacts and a lower result from construction materials resulted in EBITDA from Asia decreasing by $A5 million to $A16 million.

Earnings per share for the year were 41.4 cents. The company has maintained a fully franked final dividend of 17.0 cents per share.

Looking ahead, Pearse expects that Australia will see a further lift in construction materials earnings and building products will be broadly steady.

“In the USA, increased benefits from structured cost reduction programs will be delivered but we expect US earnings to decline further with housing starts of around 900,000 compared with 1.13 million in FY2008.

“We expect continued competitive market conditions and input cost pressures in Asia, particularly in construction materials,” he concluded.

Boral shares fell 8 cents lower at $6.03 yesterday.

Australian Property Journal