Wagners to take $10m hit in cement dispute

Wagners will take a $10m hit after calling in lawyers on its biggest cement customer.

Wagners has suspended deliveries to Boral, which takes about 40 per cent of its cement.

Building products group Wagners will take a $10 million hit to its earnings after calling in the lawyers on its biggest cement customer and launching action in the Queensland Supreme Court over a pricing dispute.

Wagners shares slumped last month after it said its key cement buyer, construction giant Boral, was trying to force down its contract prices because it had been ­offered cheaper prices by an unnamed competitor — believed to be Cement Australia, a 50-50 joint venture between Swiss giant ­Holcim and HeidelbergCement’s Hanson.

The company suspended deliveries to Boral, which takes about 40 per cent of Wagners cement, while it disputed the bona fides of the rival offer through dispute resolution procedures in its contract.

Wagner admitted last night that that process had failed, in a disclosure released after the close of the market, saying it would seek a ruling on the contractual stoush through the courts.

It stripped $10m from its annual earnings forecast due to the dispute, saying it now expected its profit before tax and interest would fall to as low as $25m-$28m for the financial year.

That would be around half its pro-forma earnings before interest, tax, depreciation and amortisation for the 2018 financial year of $50.3m.

Wagners shares have plunged from an all-time high of $4.29 in October last year to below $2 late last month, on the back of a softening outlook for building construction in the company’s main markets in Queensland, delays in major infrastructure announcements, and the dispute with Boral.

Wagners floated at $2.71 a share in ­December 2017.

Cement is the group’s most profitable product, and analysts say the Boral contract makes up about a third of Wagners’ earnings. The company said last month that the decision to suspend supply to Boral, for up to six months, would cost it $20m in lost revenue.

$2.26 Wagners closed down 4¢ q

In its statement last night, the company said the earnings downgrade factored in the loss of revenue from Boral, “the disruption faced by the cement business as well as the impacts that will flow into the concrete market, conditions in the precast concrete market and delays in projects starting”.

While analysts have flagged the potential loss of Boral’s business as a major threat to Wagners’ outlook, the company said last night its forecast earnings and revenue would be restored if the courts took its side in the dispute

“Upon resolution of the ­dispute, the sales and volumes are expected to return as provided for under the Cement Supply ­Agreement,” the company said.

It is the second time Wagners has lowered its earnings guidance this year. The group in January downgraded its expected full-year EBITDA to a range of between $35m and $38m, down from $39.5m previously. The group attributed that move to “substantial investment” in the business in readiness for domestic and international growth, as well as the timing of major projects that were yet to begin.

Wagners’ shares closed yesterday at $2.26, down 4c, or 1.7 per cent.