Keep a close eye today on the shares in southeast Queensland building materials group, Wagners Holding Co after it slipped out an update on it’s on continuing cement supply contract dispute with the giant Boral revealing a possible $10 million hit to after-tax profit for 2018-19 and more before tax.
When the dispute was first revealed on March 18, Wagner shares slumped 24% in a day to end at $2.49.
Yesterday, the shares lost 1.7% to $2.26 in a market that jumped 1% or nearly 60 points to hit a near record high.
In the statement to the ASX filed at 5.16 pm, Wagners revealed that it and Boral continue to be in dispute and are headed for the courts.
“As the parties have been unable to resolve the matter, the Company has now filed a Statement of Claim in the Supreme Court of Queensland against BLD seeking a determination through the Courts of the matters currently under dispute,” Wagner said in last night’s statement.
in the statement issued on March 18, Wagner said it had “elected to suspend the supply of cement products to Boral following the receipt of a notice from BLD purporting to be a Pricing Notice issued under the Cement Supply Agreement between the Company and BLD; and (b) commenced a formal process disputing the validity of the Pricing Notice.”
Central to the dispute is a claim from Boral that it had received a price offer from an unnamed rival to supply cement at a price lower than Wagners’.
Now for the possible cost – the bit that could see the shares come under renewed pressure.
“As a result of the commencement of litigation, the Company now advises that the FY19 guidance previously issued by it will be reduced by approximately $10 million until such time as the litigation has been either resolved or determined by the Courts. On this basis the Company now expects EBIT (Earnings Before Interest and Tax) earnings for the full year FY19 will be in the range of $25m to $28m,” the company said yesterday.
That compares to the 2017-18 EBIT of $39.486 million. The fall will be between 28% (down $11 million) at the top of the 2018-19 range and 36% (down $14 million) at the bottom.
“This reduction in guidance also takes into account the disruption faced by the cement business as well as the impacts that will flow into the concrete market, conditions in the precast concrete market and delays in projects starting,” Wagners said.
“If the Company is successful in its current litigation with respect to the Pricing Notice issued by BLD, this result would restore both revenue and earnings, recognition being subject to timing, accounting principles and audit. Upon resolution of the dispute, the sales and volumes are expected to return as provided for under the Cement Supply Agreement.
“The outlook for the rest of the Company’s business remains strong with expectations for FY19 expected to be achieved,” the company said last night.
