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Adbri (ASX:ABC) share price soars on strong FY20 result

construction, building, commericial

The Adbri Ltd (ASX: ABC) share price is up more than 7% after the construction business announced its FY20 result to the market.

FY20 result highlights

Adbri reported that its revenue had declined by 4% to $1.45 billion. The company said that the impact of lower residential activity affected cement and concrete volumes, offsetting improved sales of lime and concrete products.

The construction business also said that its underlying net profit after tax (NPAT) fell 6% to $115.6 million. However, this was ahead of the market guidance that was withdrawn in April 2020. The company said it prudently responded to pressures from slowing markets, rising input costs and challenges posed by COVID-19.

Adbri said that the earnings reflected the benefit of cost reductions achieved as a result of the group’s cost-cutting and business improvement programs which exceeded initial targets as well as stronger than anticipated volumes in the second half, particularly in Western Australia.

Reported net profit after tax of $93.7 million was up from $47.3 million in FY19. This reflected non-cash impairment charges totalling $15.2 million after tax and significant items totalling $6.7 million after tax.

Cashflow from operations increased by 32.6% to $256.2 million with improved working capital and lower income tax payments offsetting reduced distributions from joint ventures and higher interest payments.

Balance sheet

Adbri said that its balance sheet remains strong with net debt reduced by $51.2 million to $372.1 million at 31 December 2020.

The Adbri board decided to declare a final dividend of 7.25 cents per share, bringing the full year dividend to 12 cents per share, representing a payout ratio of 68% of underlying earnings.

Adbri’s current focus

The company outlined a number of initiatives to create shareholder value over the long-term.

It’s looking to continue reducing costs and improve its operational performance. It’s looking to restore lime volume and earnings after the end of the Alcoa lime contract from 30 June 2021. Adbri is targeting downstream integration and diversification with its businesses. It’s looking to increase exposure to infrastructure and maximise value creation opportunities across its land holdings.

Outlook

Adbri said that its 2020 performance demonstrated the quality of its vertically integrated business and the value of its balanced geographic and sector exposure.

Stimulus measures from all levels of government, particularly fast-tracking of construction projects including infrastructure spending, home-building grands and stamp duty relief are anticipated to benefit demand for construction materials in 2021. The improvement in housing approvals in the second half of 2020 is translating to commencements. Planned infrastructure projects are moving to the construction phase at varying levels of speed.

However, Adbri said that trading conditions are expected to remain challenging until the stimulus measures completely offset underlying softness in east coast construction markets.

Adbri said that it’s making progress in evaluating strategic initiatives to unlock opportunities for the lime business.

In 2021, Adbri is expecting earnings to be impacted when the Alcoa contract concludes and by the anticipated start-up of a competing cement terminal in NSW with an expected after-tax impact of $16 million for 2021.

However, Adbri is expecting 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.

It’s targeting $20 million in cost savings to counter cost headwinds of $10 million in 2021. Capital expenditure is anticipated to be around $200 million, including approximately $75 million for the Kwinana Upgrade Project and approximately $40 million in development capital.

Surplus land sales are expected to generate $20 million to $30 million in proceeds over the next two years.

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Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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