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Adelaide Brighton profit tumbles

Business

Adelaide Brighton Limited has blamed increased competition and soft demand for construction materials on Australia’s eastern seaboard for a significant fall in profits for the 2019 calendar year.

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The Adelaide-based company today reported an attributable net profit for the year of $47.3 million, well down on its 2018 profit of $185.3 million.

The profit downturn was matched by a $113m dip in revenue to $1.517 billion.

Adelaide Brighton operates 44 quarries, 95 concrete plants and 16 cement and lime facilities and is Australia’s leading concrete products manufacturer and lime producer.

The company has embarked on a cost cutting program, which aims to deliver savings of $30 million this year but it is also expecting “cost headwinds” in 2020.

CEO Nick Miller said cost pressures across sea freight, transport and raw materials drove down margins.

“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,” he said.

“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.”

Overall cement sales volumes fell by 6.1 per cent in FY19 due to a decline in residential demand on the eastern seaboard of Australia and increased competition in South Australia.

Underlying demand in the South Australian market was impacted by the completion of a number of key infrastructure projects including the Northern Connector Project.

However, the entry of a new cement importer and distributor in 2018 was the primary driver of lower sales.

This resulted in reduced average selling prices and the redirection of additional Birkenhead production volumes into the Victorian market at reduced margins.

Western Australian cement demand stabilised during 2019, with cement volumes slightly up on the previous year, driven by increased resources sector activity and a number of new infrastructure projects.

Lime volumes increased marginally, supported by infrastructure projects and resource sector activity, particularly gold in Western Australia.

Cement margins were also impacted by increased transport and raw materials costs (cementitious materials and shipping costs), as well as operational issues at Birkenhead caused by a lightning strike and a separate kiln bearing failure, which both led to higher clinker unit production costs.

In 2019, concrete and aggregate volumes were impacted by softer market conditions, particularly in Victoria, New South Wales and Queensland. Selling prices were modestly up on the previous year.

A final fully franked dividend of 5.0 cents per share has been declared and will be paid on April 28. This was well down on last year’s dividend of 20 cents.

Adelaide Brighton’s shares were down 12 cents this morning to $2.90 following the announcement to the Australian Securities Exchange.

The construction materials and lime producer, established in 1882, has about 1400 employees and operations in every state and territory in Australia.

It was ranked No.6 in InDaily‘s South Australian Business Index 2019, which showcases the state’s top 100 local companies.

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