Adelaide Brighton reports record net profit

Adelaide Brighton reports record net profit
Published: 27 February 2015


Adelaide Brighton reported record sales and net profit after tax of AUD1337.8m and AUD172.7m, respectively, for the year ended 31 December 2014.

Revenue increased 8.9 per cent and net profit by 14.3 per cent YoY. Adjusting for a number of one-off items, underlying net profit after tax of AUD166.5m was 8.5 per cent higher than 2013.

EBIT increased 11.1 per cent to a record AUD247.5m on an EBIT margin of 18.5 per cent. Earnings were aided by net significant items of AUD2.3m. Excluding these items underlying EBIT increased 8.5 per cent to AUD245.2m.

Significant items included: the cost of rationalisation of clinker production in Western Australia; corporate restructuring costs; and acquisition related costs. These were offset by a fair value acquisition gain and settlement of an outstanding claim against an equipment supplier.

Higher volume, lower costs and improved prices lifted earnings in cement and clinker; concrete and
aggregates; and concrete products.

Cement and clinker sales volume increased three per cent in 2014. The key growth markets were New South Wales and Queensland residential and resource projects in the Northern Territory and Western Australia. The general level of construction demand declined in Victoria. Sales volumes in South Australia declined on lower sales of back fill binder to the mining sector, while the construction market was stable with an increase in residential a ctivity offsetting lower sales to major projects. Western Australian volume was affected in the first half by disruption to a significant customer.

Average cement and clinker selling prices increased by more than CPI. Energy costs continued to
increase and production issues at the Birkenhead (South Australia) plant also affected first half
earnings. However, production rationalisation and operational improvements made a significant
contribution to margins and earnings in the year. The repeal of the carbon tax from July 2014 further
assisted second half earnings.

Rationalisation of clinker production at Munster (Western Australia) began in early 2014. While the
manufacture of speciality products continued until December 2014, clinker manufacture largely ceased in the first half of the year. The rationalisation delivered cost savings of $5m in 2014 with further savings anticipated in 2015.

The $60 million investment to upgrade and expand cement milling capacity at Birkenhead (South
Australia) delivered incremental benefits of $1.1m in 2014 over and above the $8m of benefits delivered in 2013 (the first year of the cement mill expansion). Total returns on the project in 2014 at $9.1m (pre-tax) represent a return on funds employed of 15.3 per cent, which exceeds the cost of capital.

Following the rationalisation of clinker manufacture at Munster, Adelaide Brighton’s imports of
cementitious products, including clinker, cement and blast furnace slag, increased to more than 2Mt in 2014, representing approximately 20 per cent of the Australian market. Imports into Western Australia increased following the rationalisation of manufacturing at Munster during the year.

The acquisition of the BM Webb Construction Materials business, including its cement import operations, expands the Group’s cement distribution footprint into north Queensland. Cement supplyhas been switched to a major domestic supplier.

The devaluation of the Australian Dollar against Adelaide Brighton’s major trading currencies of the
US Dollar and the Japanese Yen reduced import profitability by approximately AUD5m in 2014
compared to 2013.

Lime sales volumes fell by seven per cent YoY, partially due to weaker demand from the non-alumina sector following the closure of some gold mines in 2013.

Concrete and aggregate sales volumes improved, bolstered by recent acquisitions and higher demand from the residential sector in New South Wales and Queensland. Increased volumes and prices led to a 10.5 per cent rise in revenue for Adelaide Brighton’s Concrete Product segment.