Adbri weighs into gas price debate as shares bounce on results

Adbri has hit back at gas producers who say they shouldn’t subsidise manufacturers, saying their sector shouldn’t be pinged for export costs.

Housing approvals are turning into commencements, Adbri says.

Manufacturers reliant on gas should not have to subsidise the cost of building and running LNG plants, Adbri chief executive Nick Miller says, firing the latest salvo in the war of words on energy pricing.

As the company announced an underlying full year profit of $115.6m - ahead of market guidance withdrawn in April last year - Mr Miller also said the company had benefited from its customers’ desire for supply chain security, with five new lime customers coming on as a result.

The fragility of some supply chains, which was thrown into stark relief by the pandemic, which disrupted manufacturing and logistics across the globe last year, has had many risk managers looking to onshore supply chains.

Adbri both manufactures and imports products such as concrete, clinker and lime used across the construction and mining sectors, but its ability to supply customers, particularly in sectors such as resources, from domestic sources gave the company an edge, Mr Miller said.

Adbri CEO Nick Miller says the company has had a “laser focus” on costs.

Weighing into the debate on gas prices, in which companies such as Santos and Beach Energy have said they are not in the business of subsidising manufacturers, Mr Miller said local gas users also shouldn’t be asked to pick up the costs of gas export facilities.

Mr Miller said Adbri was a supporter of some sort of pricing mechanism, which has been strongly resisted by gas producers and not taken up as policy by the Federal Government.

“In the last decade we’ve seen gas prices in Australia double, so we’re very supportive of the use it or lose it approach (from the Federal Government) and the domestic reservation for new fields so that we are competitive with global players that are, in our space, still using coal as their principal fuel,’’ Mr Miller said.

“We certainly support a pricing mechanism in the gas space and ultimately if there’s a netback model applied it’s essential for domestic manufacturers that we are not paying for capital or op-ex costs associated with gas export.

“We understand and respect competition but we want to be on a level playing field.’’

AdBri reported a statutory net profit of $93.7m, up 93.7 per cent. The underlying result, of $115.6m, was better than consensus estimates, Mr Miller said, but was down from $186.4m in 2019. In 2018 the company made an underlying profit of $273.5m.

Revenue fell 4.1 per cent to $1.45bn in calendar 2020.

Mr Miller said the company had received JobKeeper payments for just one site last year, which it had subsequently paid back.

He said the company’s geographic spread of both production and sales meant it came through the various pandemic shocks last year robustly, and a cost-out program which has delivered $35.5 million of pre-tax savings helped deliver a better than expected result.

Stronger than anticipated volumes in the second half, particularly from Western Australia, also contributed.

“Mining demand continues uninterrupted while the construction materials sector is expected to

benefit from various government stimuli, particularly to fast-track ‘shovel ready’ construction

projects including infrastructure spending, home-building grants and stamp duty relief, all of

which position Adbri to play a key role in building a better Australia,’’ Mr Miller said.

Mr Miller said the improvement in housing approvals in the second half of last year was translating into commencements and the company was seeing this in the increased demand for aggregates which were used in the early stages of housing developments.

“The infrastructure pipeline is strong, no question about that, but there’s less certainty around what the delivery of that infrastructure looks like moving forward,’’ he said.

“We do expect a recovery in the residential sector and we’ve seen that in the last quarter of 2020 where we saw approval levels increase significantly, particularly in Queensland and Western Australia.

“That’s given us a high degree of confidence around the first half of this ... year, the second half a little less certain, particularly around the timing of infrastructure.’’

The company did not provide a specific profit guidance, due to the continuing uncertainty around COVID-19 and the timing of major infrastructure projects, but said it would continue its cost out program, looking to save $20 million to counter expected new costs of $10 million.

“Trading conditions are expected to remain challenging until the stimulus measures completely offset underlying softness in east coast construction markets,’’ the company told the ASX in a statement.

“We are making strong progress in evaluating strategic initiatives to unlock opportunities for our lime business.

“However, as previously announced, earnings will be impacted when the Alcoa contract concludes on 30 June 2021, and by the anticipated start-up of a competing cement terminal in New South Wales with an expected after-tax impact of $16 million for 2021.

“Earnings will be supported by increasing demand for cement and lime from a growing number of mining projects as the resources sector continues to operate largely uninterrupted.’’

Gearing was at 30.5 per cent at the end of December.

Adbri will pay a fully franked 7.25c final dividend, up from 5c for the same period last year.

The stock was trading strongly higher on the results, up more than 9.4 per cent to $3.23.