Boral Defies Housing Slump Anxieties
The Age
Thursday February 14, 2008
BUILDING materials company Boral has defied fears the housing slump in NSW and the US would lead to a sharp fall in its first-half earnings, reporting a surprise lift in the profitability of its Australian operations.
The company yesterday reported a 10% fall in net profits to $132 million for the six months to December 31. The unexpectedly strong earnings increase from its Australian construction materials business helped offset concerns that the company's profits were headed for a hard landing. At its annual meeting in October, the company tipped a 15% slump in first-half profits. In light of the 32% fall in housing starts in the US and continued slump in the NSW market during the half, managing director Rod Pearse said he was pleased the company's gross profits "were only down 14%" from their 2004 peak. "While it is not a great time in the housing sector, we have a great diversification of businesses," Mr Pearse said. The market seemed to agree, with Boral shares surging 42? to $6.01. In the lead-up to the result, Boral shares hit a four-year low of $5.41. Boral also announced plans for a $100 million buyback of its shares. "It's obviously quite low and therefore a buyback at this time is a good thing to do," Mr Pearse said. The company said 90% of its earnings came from Australia, compared with 74% the previous year. The profit rise in Australia helped offset the poor contribution from Boral USA, which reported a 85% profit slump. Despite the gloom in the housing market, Mr Pearse said the long-term outlook was bright, given the current level of construction was well below "underlying" demand. The company said its forecast of 150,000 housing starts in Australia for the full year compared with the long-term demand of 182,000 starts annually. Boral declared its fully franked interim dividend would remain unchanged at 17? a share, payable on March 19. The better than expected result was helped by the high demand for concrete in Australia from the non-residential and infrastructure construction sectors. Price gains for building and construction materials helped. Mr Pearse expected a further price rise for cement and concrete on April 1 would help, but he remained cautious for the full year, maintaining his forecast of a 15% dip in full-year profits. Mr Pearse also warned that the US, where Boral is the biggest supplier of bricks and clay roof tiles, and Australia were due for further falls in housing activity. He said he expected US housing starts to fall to 950,000 a year, well down from the annualised rate of 1.24 million starts in the first half.
© 2008 The Age
