Shares of Adbri (ASX:ABC), formerly known as Adelaide and Brighton and headquartered in Adelaide, experienced a steep decline of more than 14% in value yesterday. This came as a surprise to some, considering the company's solid performance in the first half of the year, despite its decision to omit an interim dividend.
The half-year report showcased impressive results, with revenue surging by 14% to reach $926.4 million. The underlying EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) saw a healthy increase of 21%, amounting to $149.1 million, while the underlying net profit marked a 12% rise, reaching $52.1 million.
Adbri's statutory result displayed a modest uptick of 3.5%, just shy of $50 million, for the six-month period.
Despite these positive indicators, the company chose not to provide an interim payout to shareholders, a contrast to the 7 cents per share distributed in the previous year. Adbri attributed this decision to the "capital requirements of the Kwinana upgrade and elevated leverage."
The Kwinana upgrade, a significant project, encountered escalating costs due to factors such as the impact of Covid-19, labor shortages, rising interest costs, higher raw material expenses, and supply chain disruptions. Consequently, net debt surged by $96.5 million during the reporting period, reaching $672.9 million as of June 30, 2023. This resulted in a leverage ratio of 2.3 times underlying EBITDA, exceeding the company's target range.
CEO Mark Irwin commented on the company's outlook for the second half of the year, stating, "We expect demand in the second half of the year to be similar to the first half, with the benefits of price increases and cost discipline supporting moderately higher earnings than 1H23.”
Despite the financial challenges, Irwin highlighted Adbri's accomplishments: "We have refocused the business, delivering double-digit revenue growth and improved earnings. All of our product lines recorded revenue growth, supported by continued solid demand and traction on price increases."
Furthermore, Adbri has prioritized sustainability efforts, enhancing its use of alternative fuels to reduce emissions and costs. These initiatives align with the company's goal of appealing to environmentally-conscious customers.
While Adbri's financial performance remains positive, the decision to omit the interim dividend and the challenges associated with the Kwinana upgrade have contributed to the recent decline in share value.
