Boral (ASX:BLD) share price edges lower as COVID hits profits

The pandemic continued to impact construction projects.

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Key points

  • Boral share price edges lower
  • $3 billion return of surplus capital to shareholders to be completed on 14 February
  • Pandemic construction shutdowns saw profits fall

The Boral Limited (ASX: BLD) share price is edging lower in early trade, down 0.8%.

Boral shares closed on Friday at $3.79 per share and are currently trading at $3.76.

Below we take a look at the construction materials company's financial results for the half year ending 31 December (1H FY22).

Boral share price edges lower on profit hit

  • Sales revenue of $1.5 billion up 1% on the prior corresponding half year and up 3% on a comparable basis
  • Net profit after tax (NPAT) before significant items down 12% from 1H FY21 to $145 million
  • Earnings before interest and tax (EBIT) of $238 million down 10%
  • Pre-tax gain of $931 million for significant items mostly from sale of its North American Building Products
  • Operating cash flow of $185 million decreased 52% from the prior corresponding period

What else happened during the half year?

The big news during the half year was the company's $3 billion return of surplus capital to its shareholders. While this caused the Boral share price to sink on the day it was announced on 4 February, shareholders look to be well rewarded.

The cash distribution is equal to $2.72 per share, comprised of $2.65 equal cap return and a special dividend of 7 cents per share (cps), unfranked. It will be completed on 14 February.

Additionally, the company reported that the strength of its sales revenue was driven by stronger underlying demand despite COVID-19 continuing to shutdown construction activities and a very wet second quarter.

The 23% fall in EBIT (excluding Property) of $78 million was largely due to the $33 million impact from those construction shutdowns, alongside rising energy costs.

Excluding the impact of the construction shutdowns, Boral noted its transformation program is delivering, with return on funds employed (excluding Property) increasing to 10.5%.

What did management say?

Commenting on the results, Boral's CEO Zlatko Todorcevski said:

With completion of the divestment of our North American Fly Ash business on 11 February 2022, we have now finalised the strategic realignment of our portfolio to focus on our Australian construction materials business.

We have substantially reshaped our portfolio, divesting our Boral North America businesses and Australian Building Products businesses for proceeds of $4.1 billion. And post half-year, we've completed the return of $3 billion in surplus capital to our shareholders.

Following receipt of the proceeds from the sale of Fly Ash, Boral has at least a further $500 million in surplus capital on a proforma basis. After considering any reinvestment opportunities, Boral will determine how to apply the surplus in accordance with its Financial Framework.

What's next?

Looking ahead, Todorcevski added:

To recover the impact of higher energy costs and other cost increases on our business, we've implemented out-of-cycle national price increases. These, together with further Transformation benefits and less expected disruption to construction activity, should deliver stronger earnings in the 2H FY2022.

Boral expects Transformation benefits for the full financial year in the range of $60–75 million, net of inflation. It does not forecast any more property sales in the half year ahead.

Capital expenditure in its continuing operations, inclusive of new leases, for FY22 is forecast to come in at around $300 million.

Boral share price snapshot

When looking at the Boral share price, it's important to keep in mind the $3 billion return of capital to shareholders, announced on 4 February.

From the opening bell on 4 January through to 3 February, Boral shares gained 5.3%. Over that same period the S&P/ASX 200 Index (ASX: XJO) lost 6.7%.

The Motley Fool Australia's parent company Motley Fool Holdings Inc. 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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