Boral sees housing construction in NSW to recover in 2008

Boral sees housing construction in NSW to recover in 2008
Published: 02 November 2006

Building materials company Boral Ltd expects the New South Wales housing downturn that was partly to blame for its recent profit downgrade, to recover some time in calendar 2008.

Boral chief executive Rod Pearse today said a turnaround in the market was some way off, though it was hard to be definitive.

Despite falling vacancy rates and real house prices, Mr Pearse said the building materials maker was yet to see a real recovery in housing approvals in NSW.

He said the prospect of further interest rate rises was causing quite a lot of home buyers to hold back.

"So while there’s been improved availability of land, people are very uncertain," he said after a speech to the Financial Services Institute of Australasia (FINSIA) in Sydney.

"So I would have thought more some time during calendar year 2008 than calendar year 2007, but it’s hard to tell."

Boral cut its 2006/07 profit forecast last week citing significant macroeconomic headwinds in its main NSW and US markets, which together account for about 60 per cent of revenue.

Boral said annual net profit would now be about 15 per cent lower than its profit last financial year of $362.4 million.

Mr Pearse said today, while the government was working hard to improve the supply of land, high government charges needed to be focused on to help affordability.

On the US front, he said people were expecting calendar year 2007 to be pretty tough, but there was hope for a strengthening in the market towards the end of calendar year 2008.

"I think there’s some hope that ... perhaps towards the end of calendar year 2008 things will start to strengthen again," he said.

Nonetheless, he said Boral was well-positioned for the future, having managed downturns before.

He said the company had very good resource and market positions, its growth programs were on track, and it had in place the capacity for when a cyclical recovery took place in both NSW and the US.

"At this stage, we’re battling some macroeconomic headwinds, but we think we’re well positioned for the future," he said.

Asked about the impact of rival Cemex’s bid last week for building stablemate Rinker Group Ltd, Mr Pearse said it would depend on the outcome, declining to comment on whether he thought the hostile takeover would be successful.

But he said the market clearly expected Cemex to increase its offer.

Cemex, the world’s third biggest cement company, lobbed a surprise $16.8 billion bid late Friday for Rinker, believed to be the biggest all-cash play for an Australian company.

Boral itself, was forced last month to reject rumours that it was the target in Cemex’s sights.

Mr Pearse today repeated that Boral was unaware of any predatorial activity.

"It’s always possible that someone is looking but ... we’re not aware of anything going on at the current time."