Boral to profit from reconstruction

BUILDING materials group Boral is confident it will start to see demand for its products from the flood-rebuilding effort in the last quarter of this financial year, and chief executive Mark Selway believes it will offset the losses caused by the extreme weather conditions.

"It will be construction materials where you'll first see demand, in the rebuilding of bridges and roads...and we're starting to already see it in our aggregates and asphalt business," Mr Selway said.

He estimated earnings losses from the floods could be about $20 million, but he noted that the new revenues generated from flood rebuilding work would be a "net positive impact" on the business.

Mr Selway's comments came as Boral delivered a better-than-expected first-half net profit of $94m, up 28 per cent from the prior year.

The result was boosted by lower interest charges and a property sale.

Earnings before interest and tax were up 8 per cent to $151m, while revenue was 4 per cent higher at $2.4 billion.

Investors were encouraged by the result, sending the shares up by as much as 7 per cent to $5.05. By late afternoon, Boral was up 27 cents, or 5.7 per cent, to $4.99 against a 0.5 per cent rise in the benchmark S&P/ASX 200 index.

Mr Selway said, subject to weather conditions in Australia, the group expected to post a full-year net profit of between $160m and $175m, a range that is sitting near the bottom end of most analyst forecasts.

About 25 per cent of Boral's revenue and profits from Australia come from Queensland and reduced demand in that state heavily affects the group's construction materials and building products division.

Mr Selway said the impact of the Queensland floods, cyclones and consistent heavy rain had deferred revenues it would have otherwise received from a full order book.

"We had full order books in the first quarter of this calendar year and we've not been able to get to that work," he said.

He expects most of that deferred revenue and work would begin recovering in the quarter ending June but said it could push out into full-year 2012.

Boral's largest division, construction materials, did not perform well with EBIT of $93m, representing a decline of 14 per cent.

The weak result was mostly driven by a 16 per cent fall in asphalt demand due mostly to rain related delays and lower construction activity in Queensland.

The group's US business also continues to suffer from historically low housing starts and it recorded an EBIT loss of $47m for the half.

The building products division fared better, boosting revenue by 3 per cent and EBIT was up 22 per cent to $55m.

Boral will pay a 7.5c fully franked interim dividend, half a cent higher than the same period a year ago.
Source Business with the Wall street journal