Financial Performance
Significant external factors continued to weigh heavily on the Group's results for the 2008/09 year. The continued decline in US housing starts had a pronounced impact on the US businesses, particularly the brick and roof tile operations, which resulted in EBIT for the US segment declining from a loss of $27.1 million in 2007/08 to a loss of $108.8 million in 2008/09. In Australia, dwelling approvals and starts were down around 20% which resulted in sales volumes declining across all Australian building products businesses. The residential weakness, combined with weakness in non-dwelling activity, resulted in concrete market volumes declining by around 10%. While cost reduction programs and price increases were successfully implemented, these were not sufficient to offset the volume declines. Australian segment operating profit was 20% below the prior year.

Largely as a result of the weaker US and Australian residential markets, Boral's net profit for the year decreased by 42% to $142.0 million. This net profit is equivalent to 24.1 cents per share, a decrease of around 16.6 cents per share compared with the prior year. A final dividend of 5.5 cents per share has been declared which will be fully franked, bringing the full year dividends to 13 cents. The total dividends for 2009 were 62% below the dividends for the 2008 year. The pay-out ratio of 54% is in line with the target range of 50% to 70%. The Group's net profit of $142.0 million includes a number of significant items. These are shown in the table below:

The Group has also written down goodwill by $17.2 million in the precast concrete panels business in Australia. The Group also wrote down the value of assets other than goodwill by $21.4 million. This relates to idle brick plants in the US and Australia as well as previously capitalised project costs in Asia of $4.3 million. Penrith Lakes Development Corporation Limited, an associate, has assessed the carrying value of freehold land and capitalised costs and recorded an impairment charge in its accounts. The net impact of this impairment charge of $11.0 million has been included in equity income of the Group.

In addition, the Group also recognised an amount of $27.2 million, reflecting expected future losses on contractual obligations in the fly ash operations in the USA. During the year, agreements were reached with the Australian Taxation Office and the US Internal Revenue Service over a number of disputed matters. As a result of reaching these agreements, provisions held for interest and tax related to these matters were reduced accordingly.

The net effect of the above significant items was an increase in the profit of $10.8 million, taking underlying profit of $131.2 million to a reported profit of $142.0 million.

The Group's revenue from ordinary activities declined by 6.2% compared with the previous year to $4.9 billion. The decrease in revenues can be largely attributed to lower volumes across most businesses. This was partially offset by increased prices, particularly in the Australian Construction Materials segment. Continued weak housing markets in Australia resulted in a 6% revenue decline in the Australian Building Products segment. US revenues in local currency declined by 33% as housing starts across the US declined by around 42%. Revenues in Asia, which consists of the Indonesian and Thailand concrete and quarry businesses, rose around 15%.

The Group's underlying¹ profit before interest and tax for the year declined by 38% compared to the previous year to $275.7 million.

The Australian operations generated operating profits of $370.3 million¹ during the year, down 20% compared to the prior year. The reduction in earnings was due largely to reduced building activity in a number of key markets, particularly in residential, commercial and industrial segments.

The Construction Materials operations in Australia reported an operating profit of $330.1 million¹, which compares to $350.9 million in the prior year. Strength in the infrastructure segment was not sufficient to offset declines in activity levels in other markets and concrete, quarry and cement volumes were lower. Price increases were achieved in cement, concrete and quarry products. These price increases, together with cost savings and higher volumes, were able to largely offset the impact of volume declines and cost increases and the profit margin remained at around the same level as the prior year at 11.7%¹.

Operating profit for the Australian Building Products segment for 2008/09 declined by 65% compared to the prior year to $40.2 million¹, largely as a consequence of lower volumes and the impact of plant fixed costs. This segment includes bricks, roof tiles, masonry, plasterboard, timber and windows which are all heavily reliant on the new residential construction market as a driver of demand. The Australian Building Products businesses achieved increased prices compared to the prior year, a notable achievement given the softer residential market.

The US housing market continued to weaken during 2008/09. Substantial declines in activity, particularly in single family detached housing, led to increased losses being incurred in the US segment. Brick sales volumes declined by 44%, although prices increased by around 1%. Concrete roof tile sales volumes declined by 39% although prices in that business also increased by around 1%. Despite price increases and cost improvements, volume declines in the Denver and Oklahoma construction materials business led to reduced profits. Profits from the fly ash business were lower than the prior year.

In Asia, volumes declined in plasterboard in most major markets during the year as activity slowed in response to weaker economic conditions. Price increases and cost reductions, however, were able to partially offset the impact of the volume declines. The reported result from the Asian plasterboard business was 26% below the prior year. The Group's construction materials businesses in Asia reported improved results as cost increases were recovered through higher prices and margins improved. Concrete volumes were also lower in Thailand due to lower levels of construction activity.

Net interest expense increased from $111.9 million to $127.2 million¹. This increase was predominantly due to an increase in average net debt and the impact of a weaker Australian dollar. Underlying EBIT interest cover declined from 4.0 times to 2.2 times, largely as a result of the decline in earnings.

Boral's long-term and short-term credit ratings were adjusted down from BBB+/A2 with Standard and Poor's to BBB/A3 and from Baa1/P2 with Moody's Investors Service, to Baa2/P2. In both cases a negative outlook has been applied.

At 30 June 2009, the Group had available undrawn committed debt facilities of around $820 million. Boral's average debt maturity profile at 30 June 2009 was around 6.1 years compared with 6.0 years at 30 June 2008.

Boral has hedged its foreign exchange exposures (primarily US dollar denominated) arising from investments in overseas operations. Earnings from foreign operations are not hedged. Boral is exposed to financial risk in its operations as a result of fluctuations occurring in interest/foreign exchange rates and certain commodity prices. Boral uses financial instruments to manage such risks.

Boral's reported return on shareholders' funds declined from 8.4% to 5.2% during the period as reported earnings declined by around 42%.