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Boral result disappoints investors

Nicki Bourlioufas  |  24 Aug 2016Text size  Decrease  Increase  |  

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Shares in the building materials maker fall after its net profit for fiscal 2016 arrives below market expectations.

 

Boral (ASX: BLD) on Wednesday reported an 8 per cent increase in profit after tax and before significant items to $268 million for fiscal 2016, after lifting performance across all markets.

However, investors were disappointed with the results.

After significant items, Boral reported a net profit after tax of $256 million, flat compared to the previous year.

Boral shares closed at $6.91, down 4.3 per cent, with earnings being softer than some analysts had expected.

Sales revenue from continuing operations was steady at $4.3 billion, with higher revenues from robust housing markets in Australia and the US dragged down by falls in revenue from resource-based states and other major project activity, including LNG projects in Queensland, Western Australia and the Northern Territory.

On a reported basis, however, sales revenue of $4.3 billion was down by 2 per cent on the prior year, due to the impact of equity accounting for the Boral CSR Bricks joint venture, formed on 1 May 2015.

Boral CEO and managing director Mike Kane said continued growth in earnings across the business reflects the benefits of the company's "Fix, Execute, Transform" program, which had contributed to a significant profit uplift for the past four years. 

"We have continued to improve our performance across our businesses in line with our strategy, managing our portfolio more efficiently and maintaining a strong balance sheet," Kane said.

"The continued growth in Boral's earnings demonstrates the great work that has been done to improve our cost base, grow margins, and efficiently supply market demand, which continues to be strong in Australia and Asia, and is growing in the US."

Earnings before interest and tax (EBIT) before significant items rose 12 per cent to $398 million despite lower property earnings.

Kane forecast a solid performance with continued growth in fiscal 2017.

A net loss of $12 million for significant items included the favourable resolution of long-term tax matters offset by a $45 million post-tax ($51 million pre-tax) impairment of the earnout receivables recognised in February 2014 at commencement of the USG Boral joint venture.

"USG Boral is proving to be a highly successful joint venture and earnings targets remain on track in local currencies. It is also important to note Boral banked a substantial A$60 million benefit at the time of the transaction due to currency movements between the transaction announcement and closing," the company said.

A fully franked final dividend of 11.5 cents per share was announced and will be paid on 26 September, bringing the full-year dividend to 22.5 cents fully franked, up 25 per cent on the prior year.

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Nicki Bourlioufas is a Morningstar contributor.

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