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Boral deliver a substantial profit improvement

Mike Kane

Company reports 64% increase in net profit to A$171 million for year ended 30 June 2014

BORAL Ltd have reported a 64% increase in net profit after tax, before significant items, to A$171 million for the year ended 30 June 2014 (A$173 million after significant items).

While sales revenue from continuing operations was up 7% to A$4.5 billion, Boral’s reported sales revenue of A$5.2 billion was marginally below the previous year, reflecting the impact of four months of equity accounting in the Gypsum division following the formation of the USG Boral joint venture in March 2014.

Earnings before interest and tax (EBIT) were 29% up on the previous year to of A$294 million.

Commenting on the results, Boral’s chief executive officer and managing director, Mike Kane, said: ‘Our focus on improving the underlying performance of Boral’s businesses through restructuring and portfolio realignment is delivering clear benefits to the business.

‘Together with the ongoing housing market recovery in the USA, improved housing activity in Australia and continued growth in Boral’s markets in Asia, these benefits contributed to Boral’s stronger result.

‘In Boral’s largest division – Construction Materials & Cement – the business closed the EBIT gap with improvements in underlying results, despite a A$20 million reduction in property earnings.

‘A significant EBIT contribution of A$277 million was broadly in line with last year. Average selling prices were disappointingly flat, however, restructuring, continuous improvements and cost-reduction programmes delivered tangible benefits, most notably in the Cement business.

‘An EBIT contribution of A$8 million from Building Products was a substantial A$48 million turnaround from the division’s reported losses last year. This strong performance improvement was achieved through portfolio rationalization and restructuring, together with improving housing construction activity in New South Wales, Queensland and Western Australia.’

Mr Kane (pictured) continued: ‘Despite a slower than expected rate of recovery in the US housing market, our Boral USA division almost halved its losses year on year. The division reported an EBIT loss of US$35 million this year versus US$66 million in the previous year; and for the first time in six years, the business reported a positive EBITDA result of US$3 million.'

With momentum building in the US business as the market continues to claw back after six years of depressed activity levels, completion of the USG Boral joint venture represented a major milestone that was achieved during the year.

Mr Kane said the Gypsum business was in an exceptional position to leverage market growth, product penetration and new technologies, and was on track to deliver the US$50 million of joint venture synergies. The underlying business delivered 19% higher revenues and a 23% lift in EBIT year on year, while Boral’s reported Gypsum earnings of A$77 million was A$6 million below last year, reflecting the impact of equity accounting the 50%-owned USG Boral joint venture from March 2014.

Another key feature of the results was the strong level of cash generation in the 2014 financial year. ‘We have more than halved Boral’s net debt – reducing it from A$1.45 billion last year to A$718 million at 30 June 2014,’ said Mr Kane.

‘The A$728 million reduction in debt was a result of A$562 million of proceeds received from USG following the sale of the Gypsum business into the USG Boral joint venture, as well as a much stronger operating cash flow of A$507 million compared with A$309 million in the previous year.’

Looking ahead, Mr Kane added that there were still challenges within Boral’s business and work was continuing to improve Boral’s EBIT return on funds employed to at least 15% over the long term.

‘While we are continuing to work on portfolio improvements to better position Boral for the long term, we are maintaining our short-term focus on cost reductions to offset inflationary headwinds – particularly as pricing remains challenging in some key markets,’ he said.

‘We are also focused on continuing to lift the performance of underperforming businesses through restructuring and other initiatives, including completing a review of our global Bricks position and commencing a review of our Australian Timber business.

‘In the 2015 financial year, we expect growth in the US housing market and key markets in Asia, but in Australia strength in the housing market and non-residential activity will be offset by a slowdown in roads and infrastructure activity. Overall, we expect improvements in the performance of each of Boral’s four divisions,’ said Mr Kane.

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