Boral and AdBri look to infrastructure rescue

Boral and AdBri look to infrastructure rescue
30 August 2019

This week CemNet has reported on the business results of Boral and Adelaide Brighton and the slowing down of Australia's construction sector. Looking more closely at the results, it is clear that there is not going to be a quick turnaround to the fortunes of these building material companies in what is becoming a competitive market.

Residential building slowdown
Boral has been sharing its FY19 results and stressed that the major headwind at present is the decline in the housing market in Australia, which has fallen by 15 per cent YoY, a trend that is expected to continue into the next year.

"In FY20, we expect downward earnings pressure in Boral Australia as the slowdown in residential construction continues to impact and won’t be fully offset by growing volumes in infrastructure projects. Higher than average property earnings and further benefits from improvement initiatives will help the result," said Boral.

"In Australia we expect continued infrastructure growth in coming years, coupled with forecasters expectations of a more modest downturn in residential construction relative to past cycles."

Boral has also been in dispute with Wagners over cement supply. Wagners recently reported that its results have been impacted by delays in Queenslands infrastructure projects.

The outlook for Adelaide Brighton was similarly muted after it had announced its 1H19 figures saw a 35 per cent drop in profits. It too highlighted a depressed housing market which has declined by 25.6 per cent between January-June 2019. Growth forecasts for the housing sector are not expected to pick up until after 2021 when it bottoms out at about 180,000 new homes a year. Cement sales volumes, the company reported, fell by eight per cent with a decline in the east coast construction activity and pricing pressure from imports.

Reuters report that while house prices have been falling for nearly two years in Australia, recent signs indicate Sydney and Melbourne are seeing stabilisation. It doesn't hide the bigger countrywide picture that has seen a fall of 5.1 per cent in residential construction in 2Q19 and a decline of 10 per cent in the last year.

The downturn in the overall construction sector is also evident. In the 2Q19, overall construction work fell by 3.8 per cent and its is predicted to fall by 11 per cent by the end of the year, according to ABC net.

Infrastructure demand rises
Public-funded infrastructure in Australia is the only real positive for building material companies. Adelaide Brighton states that infrastructure spending will remain the same or at slightly elevated levels for the next five years. Significant projects have either commenced of are in the planning stages. The company will focus on infrastructure in the greater western Sydney corridor, Victorian regional and southeast Queensland markets.

Australia's cities are expanding with rapid population growth and a recent major audit found that the country would need to invest a massive AUD600bn (US$402.2bn) in infrastructure spending over the next 15 years to keep pace with demand. The Infrastructure Australia report warns that in order for Australia to cope with a forecast population of 31.4m people in 15 years' time – an increase of 23.7 per cent – spending on infrastructure will need to remain at about AUD40bn a year.

The infrastructure minister, Michael McCormack, said the report did not account for an additional AUD23bn in new infrastructure investment announced in the 2019-20 budget, including more than 160 urban congestion projects. Nevertheless, the stated AUD100bn set aside for transport infrastructure across Australia over the next 10 years remains well short of the amount required.

Meanwhile, Roil Madew, head of Infrastructure Australia recently said, "On the infrastructure priority list there are already 103 initiatives sitting there that have been identified by the states and territories, and that means there is a pipeline of infrastructure that has been identified that could go [ahead]."

Published under Cement News