Adbri shares dive as soaring costs, wet weather events impact first half results

Adbri’s first half results have disappointed the market, with investors piling out of the construction materials company.

Adbri managing director Nick Miller expects a stronger second half for the company. Picture: Britta Campion.

Adbri shares have been smashed after the construction materials firm delivered a “soggy and disappointing’’ half year result.

The company’s stock led losses on the ASX on Monday, trading as low as $2.13 per share before recovering slightly to be 16.4 per cent lower at $2.22 in afternoon trade.

Widespread cost pressures, which the company has been unable to pass on swiftly enough to customers, impacted the result which Macquarie’s Equities’ Peter Steyn dubbed “soggy and disappointing”, with underlying profit 12 per cent below consensus.

UBS analyst Lee Power said that while volumes beat his estimates, margins “missed our already conservative assumptions” and he sees cost headwinds as a “persistent issue”.

The company told the ASX it was “optimistic”, despite wet weather and soaring costs eating into the company’s first half profits.

Adbri couldn’t lift prices fast enough in the six months to June 30 to offset inflationary pressures including higher raw materials, power, transport and fuel costs.

The company said a cost reduction program, which delivered $7.5m in gross cost savings, on track to for $10m in savings for the full year, had limited impact with the benefits outweighed by inflation and geopolitical events.

A third round of out-of-cycle price increases for 2022 would be passed onto customers from September as it looked to improve margins.

“There is always going to be lag from when a price rise takes effect and when you start to see the benefit of it due to long-term contracts,” Mr Miller told The Australian.

“In turn we will benefit from those longer-term contracts when market costs soften.”

Mr Miller said demand for the company’s products remained strong with all divisions up in the first half except for lime, which sold lower volumes as a result of a contract change.

“The result is good in the context of extreme external shocks we face, which were at a level and rate not seen in many years,” he said.

“In NSW and Queensland we’ve seen extreme wet weather events that caused significant disruptions and higher costs to deliver to our customers.”

Adbri reported a 15 per cent rise in net profit to $48.1m for the first half of 2022 compared to a year ago, but underlying profit including property profits but excluding one-off items fell 1.3 per cent to $54.3m.

Underlying EBITDA margins fell to 16.6 from 17.7 per cent mainly due to impact of wet weather and higher pricing lagging inflationary costs.

Revenue rose 8 per cent to $812.4m primarily on strong construction and mining sector demand and improved pricing across most products.

While the company is not providing firm guidance for the second half, citing the “uncertain economic and operating environment”, Mr Miller said the forecast was for an improvement.

“We have signalled that the second half will be stronger and performance will be also up, but there remains a lot of uncertainty,” he said.

The company told the ASX, “We expect growth in underlying earnings driven by increased contributions from cement, concrete, aggregates, masonry, joint ventures and recent business acquisitions, subject to weather, inflationary headwinds and traction with out-of-cycle pricing”.

Demand for cement would remain strong due to materials and labour shortages, as well as the commencement of delayed projects and flood recovery works in NSW.

Mr Miller warned higher prices for construction material would last until the economy settled on the back of Russia’s invasion of Ukraine.

Adbri declared a fully-franked interim dividend of 5c per share for the first half, compared to 5.5c in the same period last year. The dividend will be paid on October 5.