AUSTRALIA: Upbeat Boral looks to cement acquisitions

Building materials giant Boral will scour North America for merger and acquisition possibilities after flagging a return to profit for its US division this financial year as stronger housing markets pushed half-year profits to $112 million.

Efforts to realign Boral’s portfolio and cost-cutting programs were paying off, according to chief executive Mike Kane, and Boral was “sorting” through the US market. “You kiss an awful lot of frogs before you find something you like,” Mr Kane said.

“I’ve made it clear we are geographically unbalanced. We’re heavily balanced in Australia and too light in Asia and North ­America.

“Asia will grow larger simply with the market expanding, but in the US growth will probably ­involve mergers and acquisitions.”

The company reported revenues of $2.3 billion for the six months to December, with earnings remaining flat at $167m. But net profit after tax and one-off items of $105m, against a loss of $26m for the previous corresponding period, were in line with analysts’ expectations.

Deutsche Bank expected a first-half net profit of $111.8m, while UBS analyst David Leitch forecast a profit of about $110m.

Boral declared a full-franked interim dividend of 8.5c, up 21 per cent on last year. The shares fell 1.2 per cent to $5.79.

Weaker road and infrastructure activity contributed to a 4 per cent drop in earnings to $150m for the company’s largest division — construction materials and cement — although falls in earnings from concrete and quarries were offset by improvements in asphalt and concrete placing.

Mr Leitch said there were some future earnings risks due to the possibility of a decrease in infrastructure work in Queensland and Victoria, but a good level of work remained to be bid on and he expected to see growth in the next three years “weighted to the back end of those three years”.

Mr Kane said there had been a chronic shortage of spending on infrastructure in Australia over the past two decades, and while political complications might have an impact, a significant “quantum” of projects were ­already at the bidding or exploration stage and would be unstoppable.

Boral’s building products ­division posted $14m in earnings, up from $5m in the previous corresponding period, with growth in bricks and roofing ­offset by weakness in timber products.

The company had reportedly considered selling that division, but Mr Kane said good progress was being made in improving performance through joint ventures and cost reductions. “Long term, we need a better solution, and it may not be core to Boral, but if there’s no market to sell it to then our obligation is to fix the business and that’s what we’re doing,” he said.

A brickmaking joint venture with CSR, to proceed after receiving approval from the Australian Competition & Consumer Commission in December, is expected to bring savings of between $7m and $10m for Boral and CSR, with the possibility of greater synergies as the possibility of closing and selling assets and land is ­considered.

The company is targeting $58m in cost reductions for the ­financial year, an increase of $38m from forecasts last June.