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Building boom drives Adbri recovery

Business

Construction materials company and lime producer Adbri has reported a net profit after tax of $93.7 million for the 2020 calendar year – almost double its 2019 profit.

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And the Adelaide-based company is confident that government stimulus measures such as the HomeBuilder grant and the fast-tracking of major infrastructure projects will drive demand for construction materials through 2021.

The company, which changed its name from Adelaide Brighton last year, recorded the profit boost despite a 4.1 per cent decrease in revenue to $1.454 billion. It said the revenue slump was impacted by lower residential activity on cement and concrete volumes on Australia’s east coast but was offset by improved sales of lime and concrete products.

Earnings were also boosted by a cost-out program, which delivered pre-tax cost savings of $35.5 million, ahead of target.

The company achieved stronger than anticipated volumes in the second half, particularly in Western Australia, driving a 32.6 per cent increase in cash flow from operations to $256.2 million.

It made significant gains in the second half of the year following a first-half profit of just $29.1 million

In a statement to the Australian Securities Exchange this morning, Adbri Chief Executive Officer Nick Miller said the 2020 financial result was better than expected and reflected the success of cost-cutting and business improvement programs.

“We took a proactive approach to managing the impact of COVID-19, incurring some additional costs to ensure our people and customers remained safe and our sites could remain operational,” he said.

“Mining demand continues uninterrupted while the construction materials sector is expected to benefit from various government stimuli, particularly to fast-track ‘shovel ready’ construction projects including infrastructure spending, home-building grants and stamp duty relief, all of which position Adbri to play a key role in building a better Australia.”

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

Despite the significant increase in 2020 net profit, the figure of $93.7 million is still well down on its 2018 profit of $185.3 million.

The company is also forming mitigation strategies after announcing in July last year that it had lost a lime supply contract with aluminium producer Alcoa of Australia after an almost 50-year relationship.

The contract, which Adbri says is worth about $70 million a year, will end in June this year. However, a four-year contract extension to supply cement and lime to BHP’s Olympic Dam mine until at least 2026, which was announced in September, will help ease the revenue shortfall.

Overall cement volumes in 2020 were down 7.1 per cent but this was partially offset by a 1.4 per cent increase in prices and volume increases in Western Australia as a result of improved residential construction and infrastructure demand.

WA’s robust mining sector also helped sustain cement volumes and helped fuel a 4.2 per cent increase in lime sales.

Concrete volumes decreased by 8.3 per cent compared to 2019, in line with reduced demand in New South Wales and Queensland and the completion of key infrastructure projects in South Australia and the Northern Territory.

Aggregate sales volumes increased by 5 per cent reflecting strong demand for quarry products across infrastructure, road maintenance and civil projects, combined with an improvement in residential subdivision in the second half of the year driven by the Federal Government’s HomeBuilder program, particularly in the South Australian and Queensland markets.

Adbri’s board has approved a final ordinary dividend for the period of 7.25 cents per share, taking the dividend for the full 2020 year to 12 cents per share, representing a payout ratio of 68 per cent of underlying earnings.

In its statement to the ASX this morning, the company said its 2021 outlook would be further boosted by government stimulus measures aimed at the construction industry but negatively impacted when the Alcoa contract ends in June.

“The improvement in housing approvals in 2H20 is translating to commencements and planned infrastructure projects are moving to the construction phase at varying levels of speed,” the company said.

“Nevertheless, trading conditions are expected to remain challenging until the stimulus measures completely offset underlying softness in east coast construction markets.”

Adbri’s share price was up 7.5 per cent in the first hour of trade this morning to $3.17 following the announcement.

Its share price was $3.03 on February 25 last year before tumbling to $1.83 on March 23. It has recovered gradually since the Alcoa contract loss announcement in July.

Established in 1882 as Adelaide Brighton Cement, Adbri has about 1400 employees and operations in every state and territory in Australia.

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