The Boral Limited (ASX: BLD) share price has climbed more than 1% this morning after the building materials company announced its FY20 results.
As you can see in the chart below, the Boral share price has fallen from grace in the last couple of years and COVID-19 has only extended its troubles.
More patience required for Boral
New Boral CEO Zlatko Todorcevski handed down the financial year results of his predecessor and it wasn’t pretty, but it was a beat on expectations.
The business managed to surpass expectations, which were lowered following a pre-announced $1.3 billion impairment. Excluding this impairment, net profit was $181 million, substantially better than the $166 million expected.
However, the new board elected not to pay a dividend for the second half, following a 30% fall in earnings to $710 million. Whilst a slight disappointment, it’s important for management to have as much capital available as possible to ramp up production into what is likely to be a global infrastructure boom.
Boral’s annual report once again highlighted the company’s diversification. Boral is exposed to both US and Australian residential construction, but importantly, 25% of sales are still coming from Roads, Highways and Bridges in Australia, with an extensive line up of projects from the Cross River Rail in Queensland to the Westgate Tunnel in Victoria.
Management highlighted a 19% decline in Australian housing starts and a further 20% weakening in construction in Victoria to start the financial year, yet financial year revenue only reduced by 5%.
It was a similar story in the US, with revenue down 2% as 80% of concrete production plants were impacted by COVID-19 shutdowns.
The operating team made important adjustments, cutting production and running down inventory to avoid any cash flow issues, with $631 million in cash produced during the year.
On the outlook, the CEO was quoted as saying “with insufficient market visibility, Boral is unable to provide guidance for FY2021”.
But importantly, he also stated that Boral has “started FY2021 with lower revenues but only slightly lower earnings relative to the same time last year”, meaning cost-cutting measures have been successful.
My take: Diligent management avoided a capital raising, positioning for an infrastructure boom.