Boral cancels final dividend, writes down American, Australian businesses by $1.4bn

Boral has taken a $1.4b non-cash impairment charge and is suspending its full year dividend due to COVID-19 uncertainty.

Boral has also decided to scrap its final dividend for financial 2020.

Boral has suspended its final dividend, warned of a profit drop and outlined $1.35bn in writedowns across its American and Australian businesses ahead of its full year results as the global pandemic continues to hammer the construction industry.

The move has stoked expectations Boral could be forced to tap the market for a capital raising to help bolster its balance sheet.

The ASX-listed construction materials manufacturer said it expected to report full-year pre-tax earnings of between $820m-825m and a net profit after tax of $175-$180m. This is sharply lower from $1.037bn and $440m respectively from the same time a year ago.

The company has also decided to scrap its final dividend for financial 2020 when it releases its full year results later this week “given the significant uncertainty in the economic outlook”. This follows the company paying a first half dividend of 9.5c a share.

Boral said a total of $1.22m of the non-cash writedown relates to assets within Boral North America and its investment in the Meridian Brick joint venture.

This writedown, which follows the exit of former chief executive Mike Kane earlier this year, takes into account “increased demand uncertainty caused by the COVID-19 pandemic and potential longer-term impacts of prevailing economic and operating conditions”, as well as recent operating performance of the businesses.

Under Mr Kane, Boral expanded into North America with the acquisition of fly ash and construction material company Headwaters in a deal worth $3.5b. It followed up by establishing the Meridian joint brickmaking business with US firm Fonterra brick that same year.

Revenue from the US division has been hit hard by the COVID-19 pandemic, falling 5 per cent in the four months to April on the back of reduced stone, roofing and fly ash production volumes.

The company said the writedown was made on the assumption that housing repair and remodelling activity would remain low in the short term while longer-term forecast “housing starts” would reduce from 1.5m to 1.3m.

Also impacting the value of the North American division are the anticipated further closure of coal plants, which creates the fly ash by-product used in some cements.

Boral will also make a $123m writedown on the value of its Australian operations, including building products and construction materials due to “the significant decline in housing construction”, particularly in NSW, the company said.

The slower pace of infrastructure construction than previously expected; low levels of construction activity in Western Australia and the Northern Territory and the impact of recent bushfires on the Timber business has also hit the value of the business.

Citi analysts said the writedown of the North American and Australian assets would increase the company’s gross debt to equity ratio to around 42 per cent, meaning Boral’s debt covenant level of 60 per cent is unlikely to be breached.

“This implies a further $2.2 billion of equity would need to be written down to breach covenants which is unlikely in our view,” the analysts said, adding that an equity raising could be on the cards.

Boral’s gearing was high and the company’s net debt to EBITDA ratio was 3.1 times, while doemstic peers were around 1.5 times EBITDA, the analysts said.

“A capital raising could see the company pay down elevated debt levels, and unlock further balance sheet flexibility to manage the turnaround.”

Boral chairman Kathryn Fagg said she was “disappointed” with Boral’s performance and the need to take such a large impairment.

“We have taken a substantial impairment which acknowledges the recent under-performance of Boral’s businesses, recognises the current market uncertainty and adopts lower forward volumes than prior expectations,” Ms Fagg said.

“Our CEO transition has progressed very well with the appointment of Zlatko Todorcevski as Boral’s new CEO”.

Mr Todorcevski is the former chairman of Adelaide Brighton Limited and has held roles including chief financial officer of Brambles and senior executive roles at Oil Search.

Boral’s full-year results will be released on August 28.