19/08/2008 - 12:58

Boral profit falls 19%, weaker WA market

19/08/2008 - 12:58

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Building materials supplier Boral Ltd's net profit has dropped 19 per cent, dragged down by an earnings loss at its US business while it reported weaker brick earnings in Western Australia.

Boral profit falls 19%, weaker WA market

Building materials supplier Boral Ltd's net profit has dropped 19 per cent, dragged down by an earnings loss at its US business while it reported weaker brick earnings in Western Australia.

In its yearly report, the company reported lower earnings for its bricks arm was below the previous year largely due to lower volumes in WA.

Boral, the parent company of Midland Brick, said brick earnings in WA declined due to weakening markets and higher manufacturing costs associated with more extensive plant shutdowns.

Revenue from the bricks businesses was flat at $307 million with a three per cent decline in brick volumes across Australia offset by a three per cent increase in average prices.

Overall earnings before interest, tax, depreciation and amortisation in its Building Products businesses rose 11 per cent to $168 million due to gains in timber, roofing, masonry and windows from stronger Queensland and Victorian housing markets, which offset the decline in WA.

Over the 2008 financial year, dwelling approvals fell 10 per cent in WA.

Meanwhile the company reported a 19 per cent fall in net profit to $242.8 million profit for the 12 months to June, beating the guidance of $234 million provided in May.

Revenue also lifted 5.8 per cent to $5.198 billion as Sydney-based Boral increased sales at a higher price for cement and other building products in Australia.

The result from the US "has to be disappointing," chief executive Rod Pearse told media in a phone conference.

"It's been such a good market for such a long time and now we're going through a generational downturn."

Mr Pearse is expecting the US division's earnings before interest and tax (EBIT) for 2008/09 to be lower than the loss of $27 million for the year just past, in a housing slump that has another 12 months to go. There are 10 months worth of unsold new houses in the US and foreclosures are adding to the stock, Mr Pearse said.

Just two years, ago the EBIT contribution from the US business was 30 per cent of the total, according to Mr Pearse.

Boral has cut its US work force by 40 per cent, or 1,400 employees, over the past two years while mothballing many of it brick factories and operating its tiling plants below capacity.

Still, the estimated housing construction numbers for the coming year were about half the underlying demand in the US, so activity would increase at some stage, Mr Pearse said.

"The question is, when," he said.

Mr Pearse said it was too early to give more detailed guidance for the 2008/09 year, given the volatile markets, and he would give an update on trading conditions at the annual general meeting on October 24.

Boral's total EBIT was fell 16 per cent to $448 million as the Australian businesses partially offset the losses from the US.

The biggest contribution came from Boral's construction materials division, where EBIT grew 10 per cent to $351 million, as the company benefited from non-housing construction in Australia.

Looking to 2008/09, Mr Pearse said Boral expected to see a further lift in construction materials earnings in Australia, although building products would be broadly steady.

"There is dwelling stock deficiency, and there's talk from the Reserve Bank of Australia about rate cuts. That should lead to a change in sentiment ... and that will be good for our businesses," Mr Pearce said.

Boral's EBIT at its Asian business fell 45 per cent to $7 million as construction materials fell because of increased competition. The plasterboard joint venture with French construction materials maker Lafarge continued to do well.

"We think its the logical place to be and we've got a good business model, but at the moment the earnings are weakened" after costs and competition increased, Mr Pearce said.

Boral announced last week it was investing $US48 million ($A55.29 million) together with Lafarge to build a new factory in Shanghai.

The company will pay a final dividend of 17 cents per share, taking the full-year dividend to 34 cents, unchanged from the year before.

During the year, Boral said its gearing increased to 52 per cent, from 50 per cent, although Boral said this was within its 40 per cent to 70 per cent target range.

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