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Adbri posts $29m profit in tough construction climate

Business

Construction materials company Adbri – formerly known as Adelaide Brighton – has posted a net profit after tax of $29.1 million for the first half of 2020, despite declining cement revenues amid a construction downturn.

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The Adelaide-based company’s revenue was down 7 per cent to $700.7 million following a 6 per cent slump in cement sales, but lime sales were up 4 per cent following strong demand from the Western Australian gold and nickel markets.

The first half announcement came as the ABS released June quarter figures that showed Australian construction work defied expectations and posted only a modest fall in the quarter, supported by a strong engineering sector.

Adbri is forming mitigation strategies after announcing on July 3 that it had lost a lime supply contract with aluminium producer Alcoa of Australia.

The contract, which Adbri says is worth about $70 million a year, will end in June 2021.

However, CEO Nick Miller said Adbri remained well placed to benefit from demand for construction materials as a result of Federal and State Government stimulus measures and demand for cement and lime from a growing mining sector.

“Adbri remains in a strong financial position and notwithstanding the impact on demand of natural disasters and weaker domestic housing, our wholly-owned operations have expanded their cash earnings margins,” he said.

“Despite the COVID-19 pandemic, our volumes have maintained a solid trajectory and some parts of our operations have outperformed the prior period.

“Mining demand has remained uninterrupted resulting in higher volumes than in 1H19 while the construction materials sector is expected to continue to benefit from various government stimuli, particularly to fast-track shovel ready construction projects including infrastructure spending, home-building grants and stamp duty relief.

“Cash flow is healthy and benefitting from improved working capital management, capex is being managed well, our cost-out program remains on-track to deliver $30 million in annual savings and our balance sheet is being maintained in a strong condition.”

An interim dividend of 4.75 cents per share, fully franked, has been declared.

Adbri’s share price, which fell from $3.15 to $2.15 following the July 3 announcement, responded positively to this morning’s ASX announcement, gaining 2.5 per cent to be $2.45 at 12.30pm.

According to ABS figures also published this morning, construction work completed in the June quarter declined by 0.7 per cent, seasonally adjusted, to $50.1 billion, the Australian Bureau of Statistics said on Wednesday.

That left construction 2.2 per cent down compared to a year earlier.

Economists had expected a much weaker outcome as a result of the coronavirus pandemic.

Building construction fell 3.9 per cent, with residential construction down 5.5 per cent and non-residential 1.5 per cent lower.

However, engineering rose 3.8 per cent.

The data will feed into next week’s national accounts, which will confirm the Australian economy is in recession for the first time nearly 30 years.

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