Latest News

Rain, housing slowdown cut $22m off Boral profit

Apr, 23 2012

(Australia) -- BORAL boss Mark Selway says the sluggish building market and heavy east coast rains in the March quarter will shave $22 million from annual earnings, but hopes further brick plant closures will offset the heavy losses.

Mr Selway, who yesterday downgraded Boral's profit by 14 per cent to a range of $128m-$153m, said he had "mothballed" the Badgery Creek brick plant in Sydney, representing 50 per cent of NSW capacity.

"In NSW it has been soft for a long while and hasn't improved," Mr Selway said.

"In Queensland, it came off when the floods started (in January last year) and it hasn't recovered."

Boral said the group's US and Asian operations remained on track to meet expectations, and an improved final quarter remained within reach, but weather and market conditions continued to be "key variables" running up to the year's end.

Mr Selway said some work that had been delayed because of wet weather would feed into the following year's order book.

"We can play a certain amount of catch-up, that is why we have got a very big range," he said of the company's earnings guidance.

"When the sun shines, we are shipping at peak in the days that we can ship."

However, he conceded, the delays carried costs, such as workers' overtime and a premium for transport.

With the wet weather and slow housing market, he said, industry conditions were "deplorable".

"Residential housing right across Australia is down," Mr Selway said.

"We outlined in February serious declines in Western Australia and South Australia, and we didn't expect that would improve in the second half, and it hasn't."

Compounding the problems was the carbon tax, which from July would add at least $6000 to the cost of a new home, Mr Selway said.

That could not happen at a worse time for the housing sector.

"Even an interest rate cut at this stage doesn't in any way, shape or form offset the costs that people are seeing," he said.

"I think the whole industry recognises it is a smart thing to lower carbon emissions, but Australia -- being priced at three times any other Western country, and only contributing 1.5 per cent of carbon emissions globally -- it just doesn't seem to be a sensible thing to do at this current economic point in time."

Boral closed one plant in Darra, Queensland, halving production capacity in the state, and Victoria operations are expected to be reviewed.

"The Victorian market, which has been very strong in the last couple of years, is starting to see the impact of some of the economic issues," Mr Selway said.

Boral said it would buy from competitors to cover production shortfalls. A supply arrangement with CSR was already in place in Queensland, although Mr Selway has previously said Boral did not have to source products from rivals due to the weak market.

"If you take a look at demand and capacity, I have got too much inventory (and) very high fixed-cost plants. They continue to gobble up costs whether they are running or not."



In February, the group forecast earnings in the range of $150m-$175m when it booked a 28 per cent fall to $67m in net profit after tax, excluding significant items, for the six months to December.

Mr Selway said at the time the heavy rain in eastern Australia had delayed construction projects and up to $200m worth of revenue may not be recorded until next financial year.

Building materials analyst Jason Steed at JPMorgan said there were 48 rainy days in Sydney in the March quarter, compared with the average of 35.

Earnings guidance downgrades for wet weather had been anticipated, but they were worse than expected.

The latest downgrade had not impaired Boral's long-term value, he said. The group needed to press on with its liquefied natural gas projects at Gladstone in Queensland and Wheatstone in Western Australia, Mr Steed said.

Boral shares yesterday closed 11c lower at $3.70.

Source:

Follow @AggResearch