Over in Adelaide yesterday there was a reminder than not all building supply companies are benefitting from the rebound in housing.
The likes of Boral (BLD), CSR, Dulux (DLX) and Brickworks (BKW) have all reported positively on the way the housing rebound is boosting demand for bricks, and other masonry products, paints and similar items, timber, electrical products and cement and concrete.
But there’s one company who seems to be missing that bus and it’s Adelaide Brighton (ABC), the biggest maker of lime, cement and other construction materials in South Australia.
While it has operations on the east coast, it is overshadowed by bigger players in cement and concrete, such as Hansen and Holcim.
Victoria, NSW and Queensland are the three largest home building markets in the country.
Yesterday shareholders learned the company is not expecting any improvement in profit in 2014-15.
As a result of yesterday’s AGM and the earnings downgrade that was hinted at, analysts are likely start cutting their forecasts for Adelaide Brighton’s earnings forecasts.
The new CEO Martin Brydon, who took over the CEO’s role from the meeting, told shareholders the company was facing tougher times ahead.
Mr Brydon (who succeeded the long-serving Mark Chellew) said that full-year 2014 net profit is likely to be similar to the $151.1 million posted in 2012-13.
As market profit forecasts had a profit of around $161.5 million pencilled in for 2014-15, the forecast from the new CEO is being seen as a downgrade of around 7%.
Adelaide Brighton shares fell almost 5% to end at $3.565.
ABC 1Y – Adelaide Brighton shares down on flat eanings outlook
The reason for the weak profit outlook isn’t linked to the decision by a key customer, Cement Australia, to build its own cement making facilities in South Australia. Cement Australia is owned by Holcim of Switzerland and Hanson, which is controlled by the big German group HeidelbergCement.
ABC said in March that would cost it up to $15 million in lost pre tax profits from 2016, so that’s more earnings pressure for 2015-16.
Mr Brydon said yesterday that lime sales volumes are likely to be down 5% this financial year because of the suspension of operations from a major lime customer in the Northern Territory, plus the closure of a major gold mining customer last year.
"The threat of small scale lime imports in to Western Australia and the Northern Territory remains," Mr Brydon said.
"However, improved pricing following the renewal of a lime supply contract with a major alumina producer is expected to contribute $5 million to EBIT (earnings before interest and tax)," he told shareholders.
He said the company would take a $7 million one off pre-tax hit from ending clinker production at Munster in Western Australia.
The company is replacing 400,000 tonnes of local production with imported clinker. That will save $5 million pre-tax, but the cost will hit the company this calendar year.
And the company revealed a $4 million pre-tax hit from ‘operational problems‘ at its big Birkenhead plant in Adelaide after it closed for its annual shutdown.
That saw 50,000 tonnes of cement production lost and will have an impact in the current half year.
This will impact half year and full year profit, as will the net $4 million impact of restructuring charges.
Mr Brydon said that excluding these factors, the full year result in 2014 will be "similar" to 2013. Certainly the first half result will be hit hard after the one off costs.
Adelaide Brighton’s biggest problem seems to be the large exposure it has had to the resources sector in Western Australia and South Australia.
Mr Brydon said the company would benefit from the rebound in housing, but it seems from what he told the AGM, the company is facing a collection of small problems which will hold earnings back in 2014.
As we know, projects have been cancelled, curtailed or finished and costs are being cut by the mining industry and everyone is suffering, which is something pointed out at the AGM.
