With housing and construction on the east coast weak (but the mining industry growing quickly, with more to come), cement and lime manufacturer Adelaide Brighton isn’t looking to a breakout year.
In fact yesterday’s AGM in Adelaide was told the company is expecting little growth in full year profit in 2011-12 after a weaker first half.
The company says that while it’s confident there are good opportunities for long-term growth of shareholder returns, despite the mixed and uneven economic conditions, the outlook for the current year is for little change in earnings from 2010.
The strong Australian dollar is proving to have a double edged effect: a positive impact on margins of imported products, but that also means greater import competition in cement and lime products.
Managing director Mark Chellew told the AGM "At present we expect first half 2011 net profit after tax to be weaker than that in the first half of 2010.
"However, along with the price increases in our lime business and expected recovery in the concrete and cement markets in South Australia and Western Australia in the second half due to the timing of projects; we expect net profit after tax for 2011 to be similar to 2010."
The first half weakness was due to the loss of contracted cement volume in WA, the temporary shutdown of a major lime customer in the Northern Territory and maintenance programs being weighted to the first half, he said.
"In 2011, we expect the national demand for cement and concrete volumes across Australia will be similar to last year, although there are a number of risks to the business," he said.
Adelaide Brighton reported a record net profit after tax of $151.5 million for the 210-211 financial year, while earnings before interest and tax increased 16.7% to $216.2 million.
The update saw the company’s shares rise 1c to $3.10.
Mr Chellew said figures from the Australian Bureau of Statistics showed the national ready mixed market was one per cent higher year to date, than the same period last year.
"It is expected that demand will remain robust in South Australia due to infrastructure projects and in Western Australia as a result of mining projects.
"But activity in these sectors is affected by the timing of projects.
"Our expectations are that cement and concrete volumes while mildly weaker than this period last year, will increase in the second half of 2011 as projects come on line,” he said.
Lime sales volumes were expected to be the same as 2010, but he said there was the threat of small scale imports into WA continued, supported by the strong Australian dollar.
Weakness in the concrete masonry market was expected to continue in 2011, due to difficult conditions in the commercial and the multi-residential segments and the end of a large federal government building program.
Mr Chellew said Adelaide Brighton would spend $60 million to expand its major cement plant at Birkenhead in Adelaide.
The investment was expected to increase earnings before interest and tax by $10 to $12 million per year, when completed in early 2013.
He said the company would also spend an extra $34 million for two projects at the Munster kiln 6 in WA to increase production capacity by 100,000 tonnes per annum.
