ASX construction shares feel impacts of COVID-19 shutdowns

The building industry is feeling the combined effects of the summer bushfires and coronavirus. Building suppliers such as Boral Limited(ASX: BLD) and CSR Limited (ASX: CSR) are wearing the impacts.

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The Australian building industry is feeling the combined effects of the summer bushfires and coronavirus. While construction has continued to operate as an essential business throughout COVID-19, disruptions have been inevitable. ASX building suppliers such as Boral Limited (ASX: BLD) and CSR Limited (ASX: CSR) are feeling the effects. 

Boral experiences disruptions 

Boral has continued to operate and supply customers in most jurisdictions, albeit with additional health and safety measures in place. In some jurisdictions, however, stricter mandates have resulted in temporary closures and substantial disruption. 

This morning, Boral reported that for the 4 months ended April 2020, Australian concrete volumes were down 16% and revenue down 6% compared to the prior corresponding period (pcp).

In the North American division, around 25% of the workforce has been placed on furlough. 4 operations are in full or partial shutdown as a result of government mandates and around 70% of building product plants have been impacted. 

For the 4 months from January to April 2020, revenue for Boral North America decreased by around 5% on the pcp. Production volumes across the roofing, stone, and fly ash businesses were also down. CEO Mike Kane said, "the impacts of COVID-19 measures on our people and our markets have been significant and will be for some time."

Debt financing extended to maintain liquidity

Boral has extended its debt facilities with a new US Private Placement note of US$200 million. It has also secured new loan facilities of A$365 million and approved an extension of US$665 million in existing facilities. This has increased Boral's liquidity and extended its debt maturity. 

The company is taking action to preserve cash through shift reductions and temporary plant closures to align production with current and expected lower levels of activity. Capital expenditure has been reduced by 15% to 20% to ~$330 million in FY20. 

CSR sees declining revenues 

Earlier this week, CSR reported a 5% reduction in revenue for the full year ended March 2020. Net profit after tax (NPAT) from continuing operations fell 10% to $125 million, although total NPAT rose 61%. This was because total NPAT in the previous year was impacted by impairment charges relating to the Viridian Glass business. 

CSR reports it hasn't experienced a significant drop in activity since the end of March, although building product revenue was down 3% compared to the pcp. CSR nonetheless anticipates there will be an impact on activity in key markets this year. The company has declined to provide earnings guidance due to the uncertainty from COVID-19. 

Foolish takeaway

The construction sector may see a pullback this year as economic contraction takes hold. This will put pressure on sales for ASX construction shares like CSR and Boral until building markets recover.  

Motley Fool contributor Kate O'Brien has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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