Adelaide Brighton cements its future

Adelaide Brighton cements its future
Published: 20 August 2010

A strong balance sheet has set up Adelaide Brighton to investigate significant strategic investments, including a US$40m to US$50m expansion of its Birkenhead cement factory.

Announcing a half-year net profit of US$68.8m, managing director Mark Chellew said yesterday that, as well as Birkenhead, the company was considering a US$40m expansion of its Mataranka lime plant in the NT and evaluating potential acquisitions to increase its aggregates operations.

The board has also approved spending US$24m to upgrade the Munster plant in WA and will look at a further US$15m to improve lime throughput in WA.

Mr Chellew said the half-year profit to June 30 - which was up 56.7 per cent on the corresponding period - was "a very good result’’.

"It has been achieved through higher demand for cement and lime, a reduction in interest expense and the higher Australian dollar, which positively impacted margins on imported materials,’’ he said.

Net debt had been cut from US$261m to US$180m and there was US$49.5m cash at hand, compared to US$9.5m a year before.

The Birkenhead project was still in its early stages.

"We would put a new mill into Birkenhead because currently we are importing a significant amount of cement into Victoria,’’ he said.

"It would improve our profit if, instead of importing that cement, we converted the clinker at Birkenhead into cement and shipped that through to Melbourne.

"So, it’s essentially a cost reduction programme that would add a reasonable amount of money to our bottom line.

"It’s very much in the planning stage. It has not got board approval yet. We’re doing the engineering feasibility study at the moment.’’

Mr Chellew said he was aware of media speculation that the company could be a takeover target. While declining to comment on whether there had been any approach, he said that "a takeover of Adelaide Brighton is highly unlikely’’.

Mr Chellew said Adelaide Brighton had benefited from a strong infrastructure programme in South Australia - including roadworks and the Port Stanvac desalination plant - and from resources projects in WA. The company’s geographic spread across the nation was also helping it to achieve consistent growth.

Mr Chellew said the Federal Government’s Building the Education Revolution stimulus spending had been "a benefit, but it’s more like the fruit on the sideboard than the main game’’.

Looking ahead, Mr Chellew expected strong demand for cement to continue at least until the end of this year and, barring unforeseen circumstances, the company would report a net profit of US$140m to US$150m for the full year.

The board, under new chairman Chris Harris, declared an interim dividend of 7.5c plus a special dividend of 2.5c a share - both fully franked and payable on October 12. The special dividend was based on the company’s strong cash flows, improved gearing position and the availability of franking credits.