Weak Construction Market Weighs On Adelaide Brighton

Cement and concrete group, Adelaide Brighton has confirmed its mid-year downgrade to revenue and earnings and sliced dividend for 2019, and warned of a 10% slide in earnings this financial year (which ends on December 31).

The company dropped its 2019 guidance twice in the first seven months of last year as demand for its products and services fell, especially in South Australia and along the East Coast of Australia.

And the company has forecast a fall of 10% in 2020 earnings, which helped send the shares down nearly 5% to $2.88. That’s the lowest since early last October.

The Company reported revenue of $1.517 billion for 2019, down from 2018’s $1.630 billion which it said reflected “a weaker market for construction materials due to a reduction in residential construction activity and increased competition.”

Directors said the company’s earnings were “impacted by lower cement volumes, higher raw material costs and increased freight, fuel and transport costs.”

“In 2019, construction materials markets softened on the eastern seaboard of Australia, particularly in Queensland and New South Wales – driven by an oversupply of multi-residential dwellings, and a reduction in general consumer confidence,” CEO Nick Miller said in yesterday’s statement.

“In response to cost pressures, the group is well advanced with a major cost-out initiative to ensure a long-term sustainable platform for future growth, and consolidating our strong market position in lime, cement and clinker, concrete products and aggregates.

“Whilst the short-term outlook remains subdued, we expect east coast demand to improve in 2021, with the benefit of stimulus from fiscal and monetary policy measures.

“We will continue to build out our vertically integrated position in the interim to ensure we take full advantage of our long-term growth prospects.”

Underlying earnings before interest and tax (EBIT) slid 33% to $186.4 million from 2018’s $273.5 million On a statutory basis, reported EBIT was $81.9 million.

Underlying NPAT was $123.0 million, down from $191 million in 2018 but in line with guidance issued mid-year. Reported net after tax profit was $47.3 million, a fraction of the $185.2 million reported for 2018.

Looking to the rest of 2020, directors were downbeat.

“Overall, Adelaide Brighton expects conditions to remain challenging in construction materials markets, particularly with the impact of bushfires and extreme weather, since the start of the year.

“Consequently, we expect 2020 full year NPAT, excluding property, to be 10% lower than underlying profit for 2019 of $186 million, based on our early assessment of markets. We continue to closely monitor and evaluate the potential impacts of the coronavirus,“ the outlook statement said.

The final dividend of 5 cents a share is down from the 15 cents paid in 2018. The full-year payout is 20 cents a share, down from 29 cents a share in 2018.

About Glenn Dyer

Glenn Dyer has been a finance journalist and TV producer for more than 40 years. He has worked at Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.

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