AdBri bets on bounce back after first-half profit fall

THE cement and lime manufacturer Adelaide Brighton is banking on a resurgent second half amid a tough housing market after a 10 per cent fall in its first-half profit.

By InvestSMART · 19 Aug 2011

By InvestSMART ·
19 Aug 2011

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THE cement and lime manufacturer Adelaide Brighton is banking on a resurgent second half amid a tough housing market after a 10 per cent fall in its first-half profit.

The company reported a net profit of $61.5 million in the six months to June, down from $68.8 million in the previous corresponding period.

Although it expects residential construction activity to decline in the next few months, the company's managing director, Mark Chellew, said he remained confident of delivering a full-year net profit of between $144 million to $152 million because of AdBri's greater exposure to the infrastructure and resources sector. The company reported a net profit of $151.5 million last year.

"I do accept that the residential and non-residential [construction market] is extremely weak throughout Australia," Mr Chellew said.

"To be fair it is a bit of a crystal ball but we're still confident enough to give that guidance even with the worsening residential housing outlook over the next three months."

He said first-half revenue was also adversely affected by one-off problems, which he did not expect to be repeated, with two large customers in Western Australia and the Northern Territory. Seventy per cent of AdBri's revenues are generated from cement and lime sales, giving it greater exposure to the engineering and mining sectors, and making it more resistant to a housing downturn than other building materials companies.

Mr Chellew said the carbon tax would slice $5 million off its full-year revenue before mitigation. But a greater risk was the strength of the dollar, which made competing imports of cement and lime cheaper.

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Frequently Asked Questions about this Article…

What caused Adelaide Brighton (AdBri) to report a fall in first-half profit?

Adelaide Brighton reported a 10% drop in first-half net profit to $61.5 million (six months to June), down from $68.8 million a year earlier. Management said the decline was partly due to one-off problems with two large customers in Western Australia and the Northern Territory, and a generally weak residential and non‑residential construction market across Australia.

How did AdBri perform financially in the six months to June?

In the six months to June AdBri delivered a net profit of $61.5 million. That was a decrease from $68.8 million in the prior corresponding period, and first‑half revenue was also impacted by specific one‑off issues with major customers.

What full‑year profit guidance has AdBri given and how confident is management?

AdBri's managing director Mark Chellew said the company remains confident it can deliver a full‑year net profit in the range of $144 million to $152 million, despite expecting residential construction activity to weaken in coming months.

Why does AdBri expect to be more resilient to a housing downturn than other building materials companies?

About 70% of AdBri's revenues come from cement and lime sales, which gives it greater exposure to engineering, infrastructure and mining sectors. That mix means the company is less dependent on residential housing demand and therefore more resistant to a housing downturn compared with some other building‑materials businesses.

What one‑off problems affected AdBri's first‑half revenue and are they likely to continue?

Management said first‑half revenue was adversely affected by one‑off problems involving two large customers in Western Australia and the Northern Territory. The company does not expect these specific issues to be repeated.

How could the carbon tax affect Adelaide Brighton's revenue?

AdBri's managing director said the carbon tax would reduce full‑year revenue by about $5 million before any mitigation measures are applied.

What is the risk to AdBri from a strong Australian dollar?

A stronger Australian dollar is considered a greater risk because it makes imported cement and lime cheaper, increasing competitive pressure on AdBri's domestic sales.

How does the state of the housing market factor into AdBri's outlook for investors?

Management acknowledges the residential and non‑residential construction market is extremely weak in Australia and expects a near‑term decline in residential activity. However, because AdBri has significant exposure to infrastructure and resources sectors, the company believes it can still meet its full‑year profit guidance despite the tougher housing outlook.