Boral chief Mike Kane flags decade-long infrastructure boom

Boral expects the east coast infrastructure boom to be longer and stronger than even the boom in dwelling starts.

Boral chief executive Mike Kane. Picture: Renee Nowytarger.

Boral expects the infrastructure boom under way on the east coast of Australia to be longer and stronger than even the boom in dwelling starts that has moderated, but remains above historical peaks.

Unveiling a solid 16 per cent rise in annual net profit yesterday, chief executive Mike Kane said he expected the infrastructure boom to last a decade, as continuing federal funding was supercharged by record state expenditure.

“The infrastructure boom is on us right now,” Mr Kane said.

The building materials giant is bidding on a growing number of projects around the country with states in the middle of major expansions and upgrades of road, rail, tunnels and bridges to service fast-growing populations in Sydney and Melbourne.

That has added another leg to growth in the Australian building materials operations that have seen record dwelling starts which, at 212,000 by the financial year end, remain well above historical peaks despite predictions of a slowdown.

“The housing market is nowhere near receding to anywhere near the norm,” Mr Kane said.

Strong demand was providing some opportunity for margin expansion, with less competition in the market, but the long-term nature of supply contracts meant it was harder to push through price increases.

Boral is targeting a big lift in earnings in 2017-18 from the Headwaters business in the US that was purchased in November.

But it is waiting for floodwaters from Hurricane Harvey in Texas to recede before assessing the impact in that state, which accounts for 25 per cent of all of its US revenue.

Mr Kane said that as a “sand state” the Texas waters were likely to recede quickly and he expected slight disruption to light manufacturing operations there.

Boral posted a 28 per cent rise in underlying profit after tax before significant items to $343 million, and a net profit of $297m, up 16 per cent.

That was ahead of the average $314.9m forecast of analysts surveyed by Bloomberg.

The bottom line included a $46m net loss for significant items, including the transaction costs for the Headwaters purchase, impairments for its West Australian bricks business and a net gain on the sale in the first half of the financial year of its 40 per cent stake in the CSR bricks joint venture and the formation of the Meridian Brick JV in the US.

Sales revenue of $4.4 billion was up 2 per cent, including eight weeks of revenue from Headwaters.

Boral will pay a final dividend of 12c on a capital base expanded by the $2bn rights issue and placement to fund the Headwaters deal, making 24c for the full year, up 7 per cent on 2015-16.

Shares of Boral traded as low as $6.62, down 21c, and closed near its lows at $6.63, down 20c on a flat day for the broader market.

Analysts noted that the “beat” of earnings estimates was only due to a better than expected tax outcome as Boral brought to account previously unrecognised tax losses in its Australian business.