As the largest brick and roof tile manufacturer in the USA, traditionally around 20% of Boral’s revenues and earnings are derived from US housing and construction markets. With a 68% decline in housing activity from peak levels in FY2006, including a 42% year-on-year decline in FY2009, revenues have nearly halved since FY2006. The US business delivered a significant loss in FY2009.
- Despite the collapse in market volumes, prices and market share have held. Average brick prices increased by 1% in FY2009.
- US$94 million of cost reductions and performance enhancement programs with US$59 million already delivered.
- Boral’s underlying US labour force is down by around 1,700 full-time equivalent employees(or over 50%) since the peak in FY2006.
- Rolling plant closures and mothballing to match production and sales and to manage inventories; brick plant utilisation averaged 30% of capacity and concrete roof tile plant utilisation averaged 16% in FY2009.
In recent years, the Australian housing market has reflected a "two speed" dual economy, where resource intensive states have grown, Victoria has been strong due to good affordability and planning, but NSW has declined due largely to poor affordability. However, in FY2009, the global recession led to a significant decline in housing activity in most states, including Queensland and Western Australia. Overall, Australian dwelling activity was 18% lower in FY2009.
- Disciplined pricing outcomes with cement and concrete prices up 7%, quarry products up 5%, and bricks, roof tiles, timber and plasterboard prices up 3-4% in FY2009.
- An inventory build in the first half of FY2009 was largely reversed in the second half as production output was slowed through temporary and extended plant shutdowns and slowdowns. In WA, Midland Brick’s Kiln 4 has been mothballed and Kiln 8 production suspended.
- Accelerated step change and performance enhancement programs in Building Products delivered $38 million of benefits in FY2009.
- Australian full-time equivalent employees reduced by around 500 or 5% in FY2009 due to cost and production rationalisation programs.
- Capital expenditure has been significantly reduced. Construction of the new WA masonry plant was slowed but is now continuing.
Around 40% of Boral’s Australian revenues are traditionally derived in NSW and Boral has a large integrated asset base in NSW representing around 50% of Boral’s Australian assets. The significant and protracted downturn in NSW over the past six years has had a substantial impact on Boral. The NSW housing market was down a further 28% in FY2009, with activity levels around 52% below underlying demand.
- In NSW, Boral’s plants are operating between around 50% and 80% of capacity. The Gloucester parquetry plant has been closed and production suspended at several NSW operations, including the Walcha timber mill, Galong lime kiln and Kempsey brick plant. Rolling plant shutdowns have impacted most other operations.
- With production volumes low to match sales and manage inventory, manufacturing costs per unit of production have increased, requiring cost reduction programs in all businesses.
- While the Berrima cement works is operating well and benefited from the Hume Highway construction projects in FY2009, production volumes have been lowered to match demand.
- Quarry End Use earnings, which are typically around $40-$50 million p.a., are expected to reduce to around $25-$30 million in FY2010, reflecting the slowdown in residential and commercial property markets, particularly in NSW.
Typically, 40% of concrete demand is driven by dwelling, 35% by RHS&B infrastructure1 and 25% by non-dwellings construction activity. Dwelling starts were down around 18% and non-dwelling value of work approved was down 25%, while RHS&B activity was 25% stronger in FY2009. This resulted in a 10% reduction in concrete demand in FY2009 with volumes in the second half of the year down 18% on the prior corresponding period.
- Despite volume pressures, a strong focus on disciplined pricing behaviour saw cement and concrete prices lift by 7% in FY2009.
- Due to Boral’s strong focus on lifting margins through price increases, some temporary market share loss was experienced during the year.
- Australian Construction Materials delivered $76 million of step change and cost reduction benefits in FY2009 from a range of initiatives including reductions in overtime, labour hire, and administration costs, and improvements in logistics and concrete mix designs.
- A significant step change program is underway in Blue Circle Southern Cement with early indications of a possible 10% compressible cost reduction over FY2010 and FY2011.
- Boral’s Asphalt business performed strongly, benefiting from strong infrastructure volumes.
2 Includes Boral’s equity accounted share of joint venture revenues from MonierLifetile (USA) and LBGA (Asia).
Sources:
• US housing starts seasonally adjusted data from US Census.
• Australian and NSW housing starts from Australian Bureau of Statistics (ABS) to Mar-09; estimate for Jun-09 quarter based on Mar-09 quarter approvals.
• Australian concrete volumes from ABS.
• Non-dwelling value of work approved from ABS to Mar-09; estimate for Jun-09 quarter based on BIS Shrapnel value of work commenced forecast (as at Jun-09).
• RHS&B value of work done from ABS to Mar-09; Jun-09 quarter based on BIS Shrapnel forecast (as at Jul-09).
