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Building boom drives Adbri profit

Business

Construction materials and lime producer Adbri has continued its recovery with a $56.6 million net profit after tax for the first half of 2021 but the Adelaide-based company has warned of declining sales in the coming months, causing its share price to lose more than 8 per cent.

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The company, formerly known as Adelaide Brighton, cited strong construction industry demand and reduced costs for the result announced on Wednesday, which was up 94.5 per cent on the first half of 2020.

Revenues increased 7.4 per cent to $752.3 million driven by robust demand for construction materials, particularly in NSW and Queensland.

Cement and clinker sales were up 10.6 per cent, lime volumes up 3.4 per cent, concrete up 7.1 per cent and aggregate sales up 22.3 per cent for the six-month period.

Cost reduction programs are also on track to deliver $10 million in net annual savings this year. The program builds on the $15.5 million in net savings in 2020.

The company announced the cost-cutting measures last year in response to losing a lime contract with Alcoa worth $70 million from June 30, 2021.

“We have made strong progress in executing on our strategic priorities and investment initiatives, while continuing to maintain a disciplined focus on managing our cost base,” Adbri CEO Nick Miller said.

“Adbri delivered a robust first-half financial performance for 2021 recording solid growth in revenue and profits with improving margins as demand for construction materials rebounded, supported by increased residential housing activity and infrastructure spending.”

However, Miller said several factors were expected to result in reduced sales in the second half of the year.

“Sales volumes in July and August have been in line with or ahead of expectations across all markets, except NSW and SA due to lockdowns,” he said in a statement to the ASX on Wednesday.

“Earnings in the second half will be impacted by a reduction in lime volumes to Alcoa, the anticipated commencement of a competing cement import terminal in NSW and COVID-19 impacts including limitations on construction activity and increased costs caused by the delayed return of the (limestone carrier) Accolade from its drydock in Singapore.

“We remain well-positioned to benefit from increasing construction activity as a result of ongoing Government stimulus while navigating continued uncertainty from the Delta strain of COVID-19.”

Adbri shares lost 19 cents on Wednesday and a further 13 cents yesterday to close at $3.33, losing 8.7 per cent of their value since the results announcement.

The company has a market capitalisation of $2.17 billion and is the largest producer of lime and concrete products in Australia, the second largest cement and clinker supplier to the construction sector and the fourth largest concrete and aggregate producer.

It is attempting to transform its lime business following the loss of the Alcoa contract and has this year secured three-year contracts for the supply of 75,000 tonnes per annum of lime to Northern Star and also 20,000 tpa of lime to Newmont’s Boddington Gold Mine.

“In addition, a formal agreement has been reached with Alcoa to supply lime to their Wagerup facility until the end of September 2021, with commercial discussions well advanced for continuation of supply until the end of January 2022,” the company said in its result statement.

“Adbri continues to develop its options to increase its exposure to the quicklime market and will be better positioned to provide an update on its preferred strategy in late 2021.”

Established in 1882, Adbri employs more than 1500 people across Australia and, with its joint ventures, operates 57 quarries and 102 concrete plants supporting its portfolio of 22 brands.

The company will pay a fully franked interim dividend of 5.5 cents per share.

Adbri was ranked No.7 in InDaily’s 2020 South Australian Business Index of the state’s top 100 companies.

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