Adelaide Brighton forecasts profit drop in 2010

Adelaide Brighton forecasts profit drop in 2010
Published: 18 February 2010

Adelaide Brighton Ltd has forecast a drop in net profit in calendar 2010 on softer demand for concrete after managing slight profit growth last year.

The cement and lime supplier expects demand for cement to fall by about five per cent this year due to continued weakness in the commercial construction sector.

Although residential construction appears to be recovering, higher interest rates and the winding back of the first home owners grant may dampen activity, Adelaide Brighton managing director Mark Chellew said on Thursday.

"We think the commercial sector is still very, very weak and there’s no signs of life coming back into that sector as far as we can see over the next year," he told journalists.

"I think the residential recovery is starting now but it could peter off in the second half, that would be our view but that is still uncertain."

Adelaide Brighton posted a net profit of $123.1 million for the 12 months to December 31, up 1.9 per cent on $120.8 million in the previous corresponding period.

It expects a "modest decline" in net profit in 2010 due to the weaker demand for cement, while lime volumes are predicted to be flat, with major clients in the gold and alumina sector continuing to run at capacity.

The company’s shares had dropped nine cents, or 3.45 per cent, to $2.52 by 1535 AEDT on the negative outlook.

Adelaide Brighton said a key component of its 2009 result was stringent cost-cutting measures, including a reduction in staff, mothballing production plants and sale of non-core assets.

Demand for cement and concrete dropped by 15 per cent in 2009, with particular weakness in Queensland, Adelaide Brighton reported.

Cement sales volumes were down by 11 per cent, but price increases and stronger demand from the resources sector meant the arnings drop was kept to just two per cent.

Lime sales volumes were steady compared with the previous year and prices increased by six per cent.

Pricing in 2010 may come under pressure from the stronger Australian dollar, the company said.

The expiry of some cement supply contracts at the end of 2010 and 2011 created some uncertainty over contract renewal and terms, it warned.

A fully franked final dividend of eight cents per share was declared, down half a cent on the previous year.