Boral is Australia's largest building & construction materials supplier ...
Asia Investor Roadshow Ken Barton November 2008
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Asia Investor Roadshow, November 2008 USA Analyst Site Visit 2008
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Boral is Australia’s largest building & construction materials supplier, with leading market positions in the USA & Asia
ASIA USA Bricks #1 Clay roof tiles #1 Concrete roof tiles* #1 Flyash #2 Concrete & Quarries (Denver #3, Oklahoma City #2)
A total of 718 operating sites (excluding distribution) across 12 countries**
Plasterboard* Korea #2 Thailand #1 China (east) #1 Indonesia #1 Malaysia #1 The Philippines #1 Vietnam #1 AUSTRALIA India #2 Cement #2 Bricks #2 Concrete & Quarries Concrete #1 Masonry #1 Indonesia #1 Quarries #1 Roof tiles #2 Thailand #3 Asphalt #1 Plasterboard #2 Windows Timber
* 50%-owned joint venture ** includes Trinidad and Mexico Asia Investor Roadshow, November 2008 USA Analyst Site Visit 2008
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2
1
Some 96% of Boral’s FY08 EBITDA earnings were from Australia including ~70% from Construction Materials FY08 EBITDA split by segment
Construction Materials, Australia Building Products, Australia Asia USA
FY08 Revenue* split by market
Australian dwellings (including A&A) Australian non-dwellings Australian engineering & construction USA dwellings USA non-dwellings USA engineering & construction Asia Other
* Includes revenues from Asian Plasterboard and MonierLifetile joint ventures which are equity accounted
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Asia Investor Roadshow, November 2008 USA Analyst Site Visit 2008
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FY2008 financial results Sales
6%
to
$5.2bn
EBITDA1
10%
to
$688m
EBIT1
16%
to
$448m
1%
to
$112m
Tax1
26%
to
$90m
Underlying profit after tax1
17%
to
$247m
Profit after tax
19%
to
$243m
Net interest
1. Excluding goodwill and tax provision adjustment of ($31.9m) and $28.1m respectively Asia Investor Roadshow, November 2008 USA Analyst Site Visit 2008
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4
2
FY2008 financial results Underlying EPS1
from
50.0c
to
41.4c
Return on equity1
from
10.0%
to
8.5%
Return on funds employed1
from
11.9%
to
10.1%
Operating cash flow
from
$482m
to
$582m
Gearing (net debt / equity)
from
50%
to
52%
steady
at
34 cents
Full year dividend (100% franked)
1. Excluding goodwill and tax provision adjustment of ($31.9m) and $28.1m respectively
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Asia Investor Roadshow, November 2008 USA Analyst Site Visit 2008
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A solid lift in Australian EBITDA ( $52m) was offset by a large decline in offshore EBITDA ( $123m) EBITDA (A$m)
$35m (8%)
FY2007
FY2008
$17m (11%)
$118m (91%)
$5m (22%)
489 454
151
168
129 11
Construction Materials
Building Products
Asia Investor Roadshow, November 2008 USA Analyst Site Visit 2008
USA
21
16
Asia
6
6
3
Whilst sales lifted 6% and remain at high levels, EBITDA was down 10% in FY08 Sales revenue A$m
EBITDA A$m 5,199
5,500
900
5,000
800
4,500
700
4,000
1
688
600
3,500
500
3,000 2,500
400
2,000
300
1,500
FY08
FY07
FY06
FY05
FY04
FY03
FY02
FY01
FY08
FY07
FY06
FY05
FY04
FY03
FY02
0
FY01
100
0 FY00
500
FY00
200
1,000
1. Excluding significant items. Note - FY05 result onward has been adjusted for adoption of A-IFRS Asia Investor Roadshow, November 2008 USA Analyst Site Visit 2008
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7
Boral faces a number of challenges due to several extraordinary external factors 1
Significant deterioration in US housing activity
2
Protracted Australian housing downturn especially in NSW
3
Demand for concrete in Australia at record levels
4
Challenging conditions in Asia for construction materials
5
Dramatic increase in energy and other input costs
6
Global credit crisis
7
Government progresses emissions trading scheme
Asia Investor Roadshow, November 2008 USA Analyst Site Visit 2008
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8
4
Significant deterioration in US dwelling starts; ~40% of sustainable underlying demand in FY09
1
Total US dwelling starts (‘000)1 2,600 2,400 2,200
Total Housing Starts
2,000 1,800 1,600 1,400 1,200 1,000 800 600
Single Family Housing Starts
400 200
2008
2006
2004
2002
2000
1998
1996
1994
1992
1990
1988
1986
1984
1982
1980
1978
1976
1974
1972
1970
1968
1966
1964
1962
1960
0
1. Seasonally adjusted annualised monthly starts from US Census
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Asia Investor Roadshow, November 2008 USA Analyst Site Visit 2008
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In the US, new home inventory continues to correct at an accelerated rate, however existing homes remain the main concern Housing Stock
Housing Stock
(Months of supply)
(Count, millions, seasonally adjusted)
12
1.0
Excess: +2.3m
Existing Dwelling Unsold Stock
11
Existing Dwelling Unsold Stock (RHS)
0.9
10 9
Excess: 7+ months
8 7 6
Excess: 0.20m
5 4
Houses Sold During Month
4.0
0.7
3.5
0.6
3.0 2.5
0.5 0.4
New Dwelling Unsold Stock
0.2
2
Excess: +0.09m
0
New Dwelling Unsold Stock (LHS)
01
02
03
04
05
06
07
08
8 Existing Dwelling Sales (RHS)
1.4
7
1.2
6
1.0
5
0.8
4
0.6
3
0.4 1.0 0.5 0.0
0.0
00
2.0
(Annualised count, millions) 1.6
1.5
0.1
1
4.5
0.8
0.3
3
5.0
00 01 02 03 04 05 06 07 08
New Dwelling Sales (LHS)
2 1
0.2
0
0.0 00 01 02 03 04 05 06 07 08
Source: US Census Bureau, National Realtors Association Asia Investor Roadshow, November 2008 USA Analyst Site Visit 2008
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10
5
US home prices are falling quite rapidly improving affordability S&P/Case-Shiller® Home Price Index – August 2008 350
Tile states have continued to decline, but at a slower rate over last month.
300
200
150
Brick states appear to have stabilized over the last 6 months.
1993
1995
1997
1999
2001
2003
2005
Last Month
Los Angeles
-30.9%
-11.9%
-1.8%
Miami
-34.7%
-16.1%
-1.8%
Tampa
-26.8%
-7.6%
-0.4%
San Francisco
-30.7%
-13.3%
-3.5%
Denver
-5.4%
+4.0%
-0.1%
Atlanta
-8.5%
-0.8%
-0.2%
Charlotte
-2.8%
+0.7%
-0.8%
Dallas
-2.8%
+4.4%
-0.2%
CM* Brick Markets
100
0 1991
Last 6 Months
Roof Tile Markets
250
50
Peak to Trough
City
*CM is Construction Materials Market
2007
2009
Source: Standard & Poor’s
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Asia Investor Roadshow, November 2008 USA Analyst Site Visit 2008
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We are implementing a rigorous cost savings and plant slowdown program in the US; US$42.5m in Bricks and MonierLifetile and a further US$10m from construction materials (US$3m in FY09) US$31.5m
US$42.5m
Bricks MonierLifetile*
US$24m
US$30m
US$7.5m US$7m Cost savings realised
US$6m
US$12.5m
US$5m One-off program costs
(US$4m) FY2008 program impacts
Incremental benefits in FY2009 * Based on 50% share of MonierLifetile cost down program benefits Asia Investor Roadshow, November 2008 USA Analyst Site Visit 2008
Total program benefits
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12
6
Detached dwellings in NSW remain at 40 year low levels and well below underlying demand
2
FY08 Dwelling Starts as % Underlying Demand3
Building approvals for detached houses (MAT)2 40,000 35,000
VIC
30,000
100%
QLD
25,000
98%
QLD
20,000
WA
91%
VIC
15,000
NSW Others1
89%
WA
10,000
61%
5,000
NSW 85%
Aust
Jan-08
Jan-07
Jan-06
Jan-05
Jan-04
Jan-03
Jan-02
Jan-01
Jan-00
Jan-99
Jan-98
Jan-97
Jan-96
0
1. 2.
SA
South Australia, Tasmania, Northern Territory and ACT Moving annual total, June 1984 to August 2008. Source: ABS
3. Source: BIS Shrapnel based on FY09-FY13 estimates of underlying demand, Starts sourced from ABS up to Mar Q 2008 and BIS forecast for Jun Q 2008
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Asia Investor Roadshow, November 2008 USA Analyst Site Visit 2008
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Australian housing affordability is at low levels; further interest rate cuts and Federal Government initiatives (FHOG, NRAS, HAF, FHSA) should benefit from 2009 (June half) Affordability Index (September quarter 2008) 300 250 200
Australia Melbourne
150
Sydney
100
Perth 50
Brisbane
Mar-08
Mar-07
Mar-06
Mar-05
Mar-04
Mar-03
Mar-02
Mar-01
Mar-00
Mar-99
Mar-98
Mar-97
Mar-96
Mar-95
Mar-94
Mar-93
Mar-92
Mar-91
Mar-90
0
Source: HIA Notes: FHOG=First Home Owners Grant; NRAS=National Rental Affordability Scheme; HAF=Housing Affordability Fund; FHSA=First Home Saver Accounts Asia Investor Roadshow, November 2008 USA Analyst Site Visit 2008
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14
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Australian concrete demand at high levels (except NSW), underpinned by strong nondwellings and RHS&B
3
Readymix concrete production1 (MAT, January 1999 to June 2008, ‘000)
Changes in Australian readymix concrete production1 – FY2008 vs FY2007
9,000
‘000 cubic metre change Percentage change
QLD
8,000 7,000
NSW
6,000
VIC
917 12%
Qld
233
WA
5,000
9%
4,000 3,000
WA Others2
2,000 1,000
SA
80
353 6%
Vic Jan-08
Jan-07
Jan-06
Jan-05
Jan-04
Jan-03
Jan-02
Jan-01
Jan-00
Jan-99
0
-50 -1% Aust
6%
NSW
1,640 7%
1. Source: ABS 2. SA, NT, Tasmania and ACT
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Asia Investor Roadshow, November 2008 USA Analyst Site Visit 2008
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Challenging conditions in Asia for Construction Materials
4 EBIT1 A$m
EBIT / Sales1,2
30.0
15%
20.0
10%
10.0
5%
0.0
0%
FY08
-25% FY07
-50.0 FY06
-20%
FY05
-40.0
FY04
-15%
FY03
-30.0
FY02
-10%
FY01
-20.0
FY00
-5%
FY99
-10.0
Plasterboard JV after tax contribution3 of $18.1m up 12% Growth and improved market conditions in key plasterboard markets including Korea, Thailand, Indonesia, Vietnam and China Benefited from cost improvement program Concrete & Quarries: results lower due to margin pressures $31.9m write-off of goodwill which arose on acquisition of Thailand construction materials operation
1. Includes Plasterboard and Construction Materials; Plasterboard JV EBIT contribution from FY01 is profit after tax; resultRoadshow, onward has November been adjusted for adoption of A-IFRS. Excludes $31.9m write-off of Thailand goodwill 16in FY2008 AsiaFY05 Investor 2008 16 USA Analyst Site Visit onwards 2008 2. Revenues for FY01 adjusted to include Boral’s share of the Plasterboard Asia JV. 3. Plasterboard JV contribution is profit after financing and tax.
8
Volume decreases reduced FY08 earnings; price / PEP initiatives were needed to help offset dramatic increase in input costs
5
A$m 762 688
Cost Escalation
Volume EBITDA FY07
Price
Plant One-offs
Growth PEP2
QEU
Other EBITDA1 (Incl. FX) FY08
1. Excluding goodwill & tax provision adjustments. 2. Performance Enhancement Program Asia Investor Roadshow, November 2008 USA Analyst Site Visit 2008
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17
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Despite global credit crisis, Boral maintains a robust balance sheet Net debt / equity was 52% at 30 June 2008 Target gearing range of 40-70% net debt / equity Weighted average debt maturity ~6 years Weighted average cost of debt 7.0% Debt fixed/hedged ~60% ~75% of debt in US$, matching US$ assets With 30% devaluation of AUD since June 2008, interest expense to increase in FY09 and gearing (net debt/equity) expected to increase based on a 70 cent exchange rate to around top end of target range at December 2008 No major refinancing required until August 2011 when US$700m syndicated bank term credit facility matures
Asia Investor Roadshow, November 2008 USA Analyst Site Visit 2008
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18
9
Boral’s dividends and franking have been maintained despite the cyclical earnings pressure Cents / share 64 Dividend
Gross DPS
63
62
49
49
EPS
50
49
49
49
43
30
26
18
18
41
34 32
27 21
24
18
18
18
19
FY99
FY00
FY01
FY02
23
FY03
30
FY04
34
34
34
34
FY05
FY06
FY07
FY08
1
1. Underlying EPS - Excluding goodwill & tax provision adjustments. Asia Investor Roadshow, November 2008 USA Analyst Site Visit 2008
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19
Outlook FY2009 Australia
– – – – –
Dwellings at around 145,000 starts run rate in Sep quarter Building products earnings to be lower in FY09 than FY08 Concrete, quarry & cement price increases flowing through Construction materials earnings to be higher in FY09 than FY08 QEU earnings stronger in second half
Asia
– Continued growth and competitive market conditions in Asia – FY09 earnings above FY08 USA
– Continued market deterioration in Sep quarter; dwelling starts could fall to ~750,000-800,000 starts in FY09 impacting both building products and construction materials – Despite significant cost reductions FY09 earnings to be below FY08 Assuming US x-rate ~$0.70, FY09 PAT to be around $200 million;
(first half earnings to be ~40% of full year earnings) Asia Investor Roadshow, November 2008 USA Analyst Site Visit 2008
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Asia Investor Roadshow Ken Barton November 2008
Asia Investor Roadshow, November 2008 USA Analyst Site Visit 2008
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Supplementary slides
Asia Investor Roadshow, November 2008 USA Analyst Site Visit 2008
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11
Boral’s roof tile markets have fallen further and earlier than its other markets Peak to Current % change in Dwellings Starts Sep-08 qtr vs Sep-05 qtr
WA
0 to -9% -10 to -19% -20 to -29% -30 to -39% -40 to -49% -50 to -59% -60 to -69% -70 to -79% -80 to -89%
NV MO
CO CA AZ
TX FL
MonierLifetile plants US Tile plants
Mexico
Source: US Dodge data for single and multi family units
Trinidad
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Asia Investor Roadshow, November 2008 USA Analyst Site Visit 2008
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Boral’s US bricks markets have also declined dramatically Peak to Current % change in Dwellings Starts Sep-08 qtr vs Sep-05 qtr
MI IA IL KS
OH
IN
WV
MO
VA
KY OK
TN
AR
NC SC
TX
Boral Brick plants
LA
MS
AL
MD
GA
DE
0 to -9% -10 to -19% -20 to -29% -30 to -39% -40 to -49% -50 to -59% -60 to -69% -70 to -79% -80 to -89%
Source: US Dodge data for single and multi family units Asia Investor Roadshow, November 2008 USA Analyst Site Visit 2008
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24
12
We are approaching three years in the current US housing downturn USA dwelling starts cycles peak to peak (Seasonally adjusted, moving annual total, ‘000)
2,400
November 2005 2.08m
2,200
Current Downturn
2,000
February 1973 to March 1979
1,800
September 2008 1.03m
December 1978 to October 1984
1,600 1,400
October 1986 to May 1993
1,200 1,000
September 2008 seasonally adjusted: 0.817m
800 1
2
3
4
5
6
7
8 Years
Source: US Census
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Asia Investor Roadshow, November 2008 USA Analyst Site Visit 2008
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Affordability, consumer confidence, and macro economic conditions will determine the turning point and speed of recovery Underlying Demand Over Business Cycle (2005-14)
Demographic Drivers of Underlying Demand
Economic Drivers of Demand
(Gives 10 Year Picture)
(Determines the Timing)
Population Growth Immigration Interstate migration
Household Growth 14.6m
Equilibrium with
Second Homes Single / Multi Family Mix
Change in Vacant Units
Underlying Demand
Re-urbanization Non-res conversion Deterioration Demolition / Disaster
1.6m Net Removals 3.3m
19.5m Assuming all variables in equilibrium, experts suggest housing starts should be at an annualized rate of 1.95m for 2005-14, however many factors impact actual starts.
Excess Housing Stock
Affordability
Consumer Confidence
Macro Economic Conditions
New Starts Excess New Stock Excess Vacant Stock
Housing Prices Cost of Financing
Belief that house values will appreciate
Unemployment Rate Disposable Income
Source: Joint Center for Housing Studies of Harvard University Asia Investor Roadshow, November 2008 USA Analyst Site Visit 2008
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26
13
Annual underlying long-term demand of ~1.80m* US housing starts is based on expected household growth, second homes and replenishment homes Projection for Long-Run Demand for New Housing1, 2005-2014 Household growth Additional second homes & ∆ vacancies Net removals Total2
14.6m 1.6m 3.3m 19.5m
Housing starts (millions)
US Housing Underlying Demand
(Including manufactured housing)
25 20
18.0
19.5
17.6
17.0
Net removals Second homes & vacancies
15 10
Household growth
5 0
1974-83
1984-93
1994-03
2005-14
* Excludes manufactured homes which brings up underlying demand of housing starts to 1.95m 1. Joint Center for Housing Studies of Harvard University 2. This includes 1.5m of manufactured housing
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Asia Investor Roadshow, November 2008 USA Analyst Site Visit 2008
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Bricks has optimised the network at lower capacity, currently operating at ~38% vs 56% FY08 and 79% FY07 US Brick
1H FY07
1H FY09 estimate
2H FY08 Jul
Plant
Aug
Sep
Oct
Nov
Dec
Augusta Plant 013 Augusta Plant 014 Augusta Plant 015 Augusta Plant 016 Lexington 030 Salisbury Plant 081 Salisbury Plant 082 Van Wyck W/M 041 Van Wyck W/M 042 Macon, GA 020 Phenix City W/M 141 Phenix City W/M 143 Phenix City W/M 144 Phenix City W/M 145 Smyrna Plant 091 Bessemer Plant 165 Bessemer Plant 166 Gleason 060 Macon, MS 050
Ramp Up - commissioning
Terre Haute, IN 070 Henderson 100 Marshall 110 Muskogee 120 Union City 130
At Capacity
Slowed
Asia Investor Roadshow, November 2008 USA Analyst Site Visit 2008
Temp. Close
Mothballed
Twin Kilns
28
28
14
MonierLifetile currently operating at ~20% of capacity, compared with 27% in FY08 vs 48% FY07 and 75% FY06 MonierLifetile
1H FY07
1H FY09 estimate
2H FY08
Plant Gilroy, CA
Jul
Aug
Sep
Oct
Nov
Jul
Aug
Sep
Oct
Dec
Denver, CO Boca Raton, FL Henderson, NV Kansas, MO Katy, TX Lake Wales #1, FL Lake Wales #2, FL Pompano Beach, FL Tacoma, FL Lathrop, CA Phoenix, AZ Rialto, CA Stockton, CA
US Tile
Nov
Dec
Corona - Line 4 Corona - Line 5
Commissioning Phase
Ione Trinidad
Slowed
At Capacity
Temp. Close
Mothballed
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Asia Investor Roadshow, November 2008 USA Analyst Site Visit 2008
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Vacancy rates in Australia are at low levels but yields are beginning to improve supporting residential investment Capital City House Annual Yield (%) 8 7 6 5
3
Perth Brisbane Melbourne
2
Sydney
4
1 Jun-08
Jun-07
Jun-06
Jun-05
Jun-04
Jun-03
Jun-02
Jun-01
Jun-00
Jun-99
Jun-98
Jun-97
Jun-96
Jun-95
Jun-94
Jun-93
Jun-92
Jun-91
Jun-90
Jun-89
0
Source: ABS
Asia Investor Roadshow, November 2008 USA Analyst Site Visit 2008
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30
15
Strong levels of population growth including net overseas migration are underpinning underlying housing demand Total net overseas migration growth (MAT)
Total population growth (MAT) States
Total*
States
Total*
160,000
350,000
100,000
200,000
140,000
300,000
90,000
175,000
80,000 60,000
150,000
Mar-08
0 Mar-00
0
Mar-08
Mar-07
Mar-06
Mar-05
Mar-04
Mar-03
Mar-02
Mar-01
50,000
SA 25,000
WA
10,000
0 Mar-00
QLD
20,000
50,000
0
75,000
30,000
Mar-07
SA
VIC
Mar-06
WA
100,000
NSW
40,000
100,000
20,000
125,000
50,000
Mar-05
40,000
200,000
150,000
Total*
Mar-04
VIC
NSW
60,000
70,000
Mar-03
80,000
250,000
Mar-02
QLD
100,000
Mar-01
Total*
120,000
Source: ABS * Total includes NSW, VIC, QLD, WA, SA only
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Asia Investor Roadshow, November 2008 USA Analyst Site Visit 2008
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Australian markets forecast to grow significantly over next few years Australian Building Activities – Value of Work Done1
% change
$97/98 billion
65
5.8
60
4.8
55
2.3
2.7
2.6
4.8 (0.4) 9.3
3.4
RHS&B
(1.7)
50 45 40
1.2
(3.0) (2.2)
(2.1)
(1.1)
Non-dwelling
(1.1)
Dwelling2
35 30 25 20 15
8.5
8.4
11.9
7.4
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Asia Investor Roadshow, November 2008 USA Analyst Site Visit 2008
FY13f
FY12f
FY11f
FY10f
FY07
FY08e
1. Source: ABS & BIS Shrapnel 2. Includes Alterations and Additions
FY06
FY05
FY04
FY03
FY02
FY01
FY00
FY99
FY98
FY97
FY96
FY95
FY94
FY93
0
FY09f
5
32
32
16
Stronger pricing despite volume pressures in key NSW and US markets during FY2008 FY2008 v FY2007 ∆ Prices / Volume / EBITDA
Building Products, Australia
Construction Materials, Australia
USA
Bricks Roofing Masonry Plasterboard Timber Windows Cement Concrete & Quarries Asphalt Bricks Clay Tiles Concrete Tiles1 Flyash Construction Materials2
1. MonierLifetile JV is equity accounted – Boral’s share of revenue does not appear in consolidated accounts. 2. Includes Oklahoma concrete and quarry operations acquired in August 2007.
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Asia Investor Roadshow, November 2008 USA Analyst Site Visit 2008
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PEP savings targeted at 3-4% of compressible costs, averaging 3.4% over past five years, continue to be delivered across the Group A$m 160
3.8
PEP savings
%
% of compressible costs
4
3.4 3.1
3.2
3.4
120
3
80 120
106
124
142
2
151
40
1
0
0
FY04
FY05
Asia Investor Roadshow, November 2008 USA Analyst Site Visit 2008
FY06
FY07
FY08
34
34
17
Boral has been active around capital management and its balance sheet April 2008: Off-market share buy-back $114m or ~3.3% of issued shares at $5.65 / share April 2008: Issuance of US$382m of unsecured notes in US private placement market August 2008: US$700m syndicated bank term credit facility with maturity in August 2011
Debt A$m
Debt Maturity Profile Adjusted for US$700m committed standby
As at 30 June 2008
550 500 450 400 350 300 250 200 150 100 50
AUD & USD Commercial Paper Bank Debt US Private Placement
1
Asia Investor Roadshow, November 2008 USA Analyst Site Visit 2008
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Boral is Australia’s largest building & construction materials supplier, with leading market positions in the USA & Asia
ASIA USA Bricks #1 Clay roof tiles #1 Concrete roof tiles* #1 Flyash #2 Concrete & Quarries (Denver #3, Oklahoma City #2)
A total of 718 operating sites (excluding distribution) across 12 countries**
Plasterboard* Korea #2 Thailand #1 China (east) #1 Indonesia #1 Malaysia #1 The Philippines #1 Vietnam #1 AUSTRALIA India #2 Cement #2 Bricks #2 Concrete & Quarries Concrete #1 Masonry #1 Indonesia #1 Quarries #1 Roof tiles #2 Thailand #3 Asphalt #1 Plasterboard #2 Windows Timber
* 50%-owned joint venture ** includes Trinidad and Mexico Asia Investor Roadshow, November 2008 USA Analyst Site Visit 2008
2
2
1
Some 96% of Boral’s FY08 EBITDA earnings were from Australia including ~70% from Construction Materials FY08 EBITDA split by segment
Construction Materials, Australia Building Products, Australia Asia USA
FY08 Revenue* split by market
Australian dwellings (including A&A) Australian non-dwellings Australian engineering & construction USA dwellings USA non-dwellings USA engineering & construction Asia Other
* Includes revenues from Asian Plasterboard and MonierLifetile joint ventures which are equity accounted
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Asia Investor Roadshow, November 2008 USA Analyst Site Visit 2008
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FY2008 financial results Sales
6%
to
$5.2bn
EBITDA1
10%
to
$688m
EBIT1
16%
to
$448m
1%
to
$112m
Tax1
26%
to
$90m
Underlying profit after tax1
17%
to
$247m
Profit after tax
19%
to
$243m
Net interest
1. Excluding goodwill and tax provision adjustment of ($31.9m) and $28.1m respectively Asia Investor Roadshow, November 2008 USA Analyst Site Visit 2008
4
4
2
FY2008 financial results Underlying EPS1
from
50.0c
to
41.4c
Return on equity1
from
10.0%
to
8.5%
Return on funds employed1
from
11.9%
to
10.1%
Operating cash flow
from
$482m
to
$582m
Gearing (net debt / equity)
from
50%
to
52%
steady
at
34 cents
Full year dividend (100% franked)
1. Excluding goodwill and tax provision adjustment of ($31.9m) and $28.1m respectively
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Asia Investor Roadshow, November 2008 USA Analyst Site Visit 2008
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A solid lift in Australian EBITDA ( $52m) was offset by a large decline in offshore EBITDA ( $123m) EBITDA (A$m)
$35m (8%)
FY2007
FY2008
$17m (11%)
$118m (91%)
$5m (22%)
489 454
151
168
129 11
Construction Materials
Building Products
Asia Investor Roadshow, November 2008 USA Analyst Site Visit 2008
USA
21
16
Asia
6
6
3
Whilst sales lifted 6% and remain at high levels, EBITDA was down 10% in FY08 Sales revenue A$m
EBITDA A$m 5,199
5,500
900
5,000
800
4,500
700
4,000
1
688
600
3,500
500
3,000 2,500
400
2,000
300
1,500
FY08
FY07
FY06
FY05
FY04
FY03
FY02
FY01
FY08
FY07
FY06
FY05
FY04
FY03
FY02
0
FY01
100
0 FY00
500
FY00
200
1,000
1. Excluding significant items. Note - FY05 result onward has been adjusted for adoption of A-IFRS Asia Investor Roadshow, November 2008 USA Analyst Site Visit 2008
7
7
Boral faces a number of challenges due to several extraordinary external factors 1
Significant deterioration in US housing activity
2
Protracted Australian housing downturn especially in NSW
3
Demand for concrete in Australia at record levels
4
Challenging conditions in Asia for construction materials
5
Dramatic increase in energy and other input costs
6
Global credit crisis
7
Government progresses emissions trading scheme
Asia Investor Roadshow, November 2008 USA Analyst Site Visit 2008
8
8
4
Significant deterioration in US dwelling starts; ~40% of sustainable underlying demand in FY09
1
Total US dwelling starts (‘000)1 2,600 2,400 2,200
Total Housing Starts
2,000 1,800 1,600 1,400 1,200 1,000 800 600
Single Family Housing Starts
400 200
2008
2006
2004
2002
2000
1998
1996
1994
1992
1990
1988
1986
1984
1982
1980
1978
1976
1974
1972
1970
1968
1966
1964
1962
1960
0
1. Seasonally adjusted annualised monthly starts from US Census
9
Asia Investor Roadshow, November 2008 USA Analyst Site Visit 2008
9
In the US, new home inventory continues to correct at an accelerated rate, however existing homes remain the main concern Housing Stock
Housing Stock
(Months of supply)
(Count, millions, seasonally adjusted)
12
1.0
Excess: +2.3m
Existing Dwelling Unsold Stock
11
Existing Dwelling Unsold Stock (RHS)
0.9
10 9
Excess: 7+ months
8 7 6
Excess: 0.20m
5 4
Houses Sold During Month
4.0
0.7
3.5
0.6
3.0 2.5
0.5 0.4
New Dwelling Unsold Stock
0.2
2
Excess: +0.09m
0
New Dwelling Unsold Stock (LHS)
01
02
03
04
05
06
07
08
8 Existing Dwelling Sales (RHS)
1.4
7
1.2
6
1.0
5
0.8
4
0.6
3
0.4 1.0 0.5 0.0
0.0
00
2.0
(Annualised count, millions) 1.6
1.5
0.1
1
4.5
0.8
0.3
3
5.0
00 01 02 03 04 05 06 07 08
New Dwelling Sales (LHS)
2 1
0.2
0
0.0 00 01 02 03 04 05 06 07 08
Source: US Census Bureau, National Realtors Association Asia Investor Roadshow, November 2008 USA Analyst Site Visit 2008
10
10
5
US home prices are falling quite rapidly improving affordability S&P/Case-Shiller® Home Price Index – August 2008 350
Tile states have continued to decline, but at a slower rate over last month.
300
200
150
Brick states appear to have stabilized over the last 6 months.
1993
1995
1997
1999
2001
2003
2005
Last Month
Los Angeles
-30.9%
-11.9%
-1.8%
Miami
-34.7%
-16.1%
-1.8%
Tampa
-26.8%
-7.6%
-0.4%
San Francisco
-30.7%
-13.3%
-3.5%
Denver
-5.4%
+4.0%
-0.1%
Atlanta
-8.5%
-0.8%
-0.2%
Charlotte
-2.8%
+0.7%
-0.8%
Dallas
-2.8%
+4.4%
-0.2%
CM* Brick Markets
100
0 1991
Last 6 Months
Roof Tile Markets
250
50
Peak to Trough
City
*CM is Construction Materials Market
2007
2009
Source: Standard & Poor’s
11
Asia Investor Roadshow, November 2008 USA Analyst Site Visit 2008
11
We are implementing a rigorous cost savings and plant slowdown program in the US; US$42.5m in Bricks and MonierLifetile and a further US$10m from construction materials (US$3m in FY09) US$31.5m
US$42.5m
Bricks MonierLifetile*
US$24m
US$30m
US$7.5m US$7m Cost savings realised
US$6m
US$12.5m
US$5m One-off program costs
(US$4m) FY2008 program impacts
Incremental benefits in FY2009 * Based on 50% share of MonierLifetile cost down program benefits Asia Investor Roadshow, November 2008 USA Analyst Site Visit 2008
Total program benefits
12
12
6
Detached dwellings in NSW remain at 40 year low levels and well below underlying demand
2
FY08 Dwelling Starts as % Underlying Demand3
Building approvals for detached houses (MAT)2 40,000 35,000
VIC
30,000
100%
QLD
25,000
98%
QLD
20,000
WA
91%
VIC
15,000
NSW Others1
89%
WA
10,000
61%
5,000
NSW 85%
Aust
Jan-08
Jan-07
Jan-06
Jan-05
Jan-04
Jan-03
Jan-02
Jan-01
Jan-00
Jan-99
Jan-98
Jan-97
Jan-96
0
1. 2.
SA
South Australia, Tasmania, Northern Territory and ACT Moving annual total, June 1984 to August 2008. Source: ABS
3. Source: BIS Shrapnel based on FY09-FY13 estimates of underlying demand, Starts sourced from ABS up to Mar Q 2008 and BIS forecast for Jun Q 2008
13
Asia Investor Roadshow, November 2008 USA Analyst Site Visit 2008
13
Australian housing affordability is at low levels; further interest rate cuts and Federal Government initiatives (FHOG, NRAS, HAF, FHSA) should benefit from 2009 (June half) Affordability Index (September quarter 2008) 300 250 200
Australia Melbourne
150
Sydney
100
Perth 50
Brisbane
Mar-08
Mar-07
Mar-06
Mar-05
Mar-04
Mar-03
Mar-02
Mar-01
Mar-00
Mar-99
Mar-98
Mar-97
Mar-96
Mar-95
Mar-94
Mar-93
Mar-92
Mar-91
Mar-90
0
Source: HIA Notes: FHOG=First Home Owners Grant; NRAS=National Rental Affordability Scheme; HAF=Housing Affordability Fund; FHSA=First Home Saver Accounts Asia Investor Roadshow, November 2008 USA Analyst Site Visit 2008
14
14
7
Australian concrete demand at high levels (except NSW), underpinned by strong nondwellings and RHS&B
3
Readymix concrete production1 (MAT, January 1999 to June 2008, ‘000)
Changes in Australian readymix concrete production1 – FY2008 vs FY2007
9,000
‘000 cubic metre change Percentage change
QLD
8,000 7,000
NSW
6,000
VIC
917 12%
Qld
233
WA
5,000
9%
4,000 3,000
WA Others2
2,000 1,000
SA
80
353 6%
Vic Jan-08
Jan-07
Jan-06
Jan-05
Jan-04
Jan-03
Jan-02
Jan-01
Jan-00
Jan-99
0
-50 -1% Aust
6%
NSW
1,640 7%
1. Source: ABS 2. SA, NT, Tasmania and ACT
15
Asia Investor Roadshow, November 2008 USA Analyst Site Visit 2008
15
Challenging conditions in Asia for Construction Materials
4 EBIT1 A$m
EBIT / Sales1,2
30.0
15%
20.0
10%
10.0
5%
0.0
0%
FY08
-25% FY07
-50.0 FY06
-20%
FY05
-40.0
FY04
-15%
FY03
-30.0
FY02
-10%
FY01
-20.0
FY00
-5%
FY99
-10.0
Plasterboard JV after tax contribution3 of $18.1m up 12% Growth and improved market conditions in key plasterboard markets including Korea, Thailand, Indonesia, Vietnam and China Benefited from cost improvement program Concrete & Quarries: results lower due to margin pressures $31.9m write-off of goodwill which arose on acquisition of Thailand construction materials operation
1. Includes Plasterboard and Construction Materials; Plasterboard JV EBIT contribution from FY01 is profit after tax; resultRoadshow, onward has November been adjusted for adoption of A-IFRS. Excludes $31.9m write-off of Thailand goodwill 16in FY2008 AsiaFY05 Investor 2008 16 USA Analyst Site Visit onwards 2008 2. Revenues for FY01 adjusted to include Boral’s share of the Plasterboard Asia JV. 3. Plasterboard JV contribution is profit after financing and tax.
8
Volume decreases reduced FY08 earnings; price / PEP initiatives were needed to help offset dramatic increase in input costs
5
A$m 762 688
Cost Escalation
Volume EBITDA FY07
Price
Plant One-offs
Growth PEP2
QEU
Other EBITDA1 (Incl. FX) FY08
1. Excluding goodwill & tax provision adjustments. 2. Performance Enhancement Program Asia Investor Roadshow, November 2008 USA Analyst Site Visit 2008
6
17
17
Despite global credit crisis, Boral maintains a robust balance sheet Net debt / equity was 52% at 30 June 2008 Target gearing range of 40-70% net debt / equity Weighted average debt maturity ~6 years Weighted average cost of debt 7.0% Debt fixed/hedged ~60% ~75% of debt in US$, matching US$ assets With 30% devaluation of AUD since June 2008, interest expense to increase in FY09 and gearing (net debt/equity) expected to increase based on a 70 cent exchange rate to around top end of target range at December 2008 No major refinancing required until August 2011 when US$700m syndicated bank term credit facility matures
Asia Investor Roadshow, November 2008 USA Analyst Site Visit 2008
18
18
9
Boral’s dividends and franking have been maintained despite the cyclical earnings pressure Cents / share 64 Dividend
Gross DPS
63
62
49
49
EPS
50
49
49
49
43
30
26
18
18
41
34 32
27 21
24
18
18
18
19
FY99
FY00
FY01
FY02
23
FY03
30
FY04
34
34
34
34
FY05
FY06
FY07
FY08
1
1. Underlying EPS - Excluding goodwill & tax provision adjustments. Asia Investor Roadshow, November 2008 USA Analyst Site Visit 2008
19
19
Outlook FY2009 Australia
– – – – –
Dwellings at around 145,000 starts run rate in Sep quarter Building products earnings to be lower in FY09 than FY08 Concrete, quarry & cement price increases flowing through Construction materials earnings to be higher in FY09 than FY08 QEU earnings stronger in second half
Asia
– Continued growth and competitive market conditions in Asia – FY09 earnings above FY08 USA
– Continued market deterioration in Sep quarter; dwelling starts could fall to ~750,000-800,000 starts in FY09 impacting both building products and construction materials – Despite significant cost reductions FY09 earnings to be below FY08 Assuming US x-rate ~$0.70, FY09 PAT to be around $200 million;
(first half earnings to be ~40% of full year earnings) Asia Investor Roadshow, November 2008 USA Analyst Site Visit 2008
20
20
10
Asia Investor Roadshow Ken Barton November 2008
Asia Investor Roadshow, November 2008 USA Analyst Site Visit 2008
21
21
Supplementary slides
Asia Investor Roadshow, November 2008 USA Analyst Site Visit 2008
22
22
11
Boral’s roof tile markets have fallen further and earlier than its other markets Peak to Current % change in Dwellings Starts Sep-08 qtr vs Sep-05 qtr
WA
0 to -9% -10 to -19% -20 to -29% -30 to -39% -40 to -49% -50 to -59% -60 to -69% -70 to -79% -80 to -89%
NV MO
CO CA AZ
TX FL
MonierLifetile plants US Tile plants
Mexico
Source: US Dodge data for single and multi family units
Trinidad
23
Asia Investor Roadshow, November 2008 USA Analyst Site Visit 2008
23
Boral’s US bricks markets have also declined dramatically Peak to Current % change in Dwellings Starts Sep-08 qtr vs Sep-05 qtr
MI IA IL KS
OH
IN
WV
MO
VA
KY OK
TN
AR
NC SC
TX
Boral Brick plants
LA
MS
AL
MD
GA
DE
0 to -9% -10 to -19% -20 to -29% -30 to -39% -40 to -49% -50 to -59% -60 to -69% -70 to -79% -80 to -89%
Source: US Dodge data for single and multi family units Asia Investor Roadshow, November 2008 USA Analyst Site Visit 2008
24
24
12
We are approaching three years in the current US housing downturn USA dwelling starts cycles peak to peak (Seasonally adjusted, moving annual total, ‘000)
2,400
November 2005 2.08m
2,200
Current Downturn
2,000
February 1973 to March 1979
1,800
September 2008 1.03m
December 1978 to October 1984
1,600 1,400
October 1986 to May 1993
1,200 1,000
September 2008 seasonally adjusted: 0.817m
800 1
2
3
4
5
6
7
8 Years
Source: US Census
25
Asia Investor Roadshow, November 2008 USA Analyst Site Visit 2008
25
Affordability, consumer confidence, and macro economic conditions will determine the turning point and speed of recovery Underlying Demand Over Business Cycle (2005-14)
Demographic Drivers of Underlying Demand
Economic Drivers of Demand
(Gives 10 Year Picture)
(Determines the Timing)
Population Growth Immigration Interstate migration
Household Growth 14.6m
Equilibrium with
Second Homes Single / Multi Family Mix
Change in Vacant Units
Underlying Demand
Re-urbanization Non-res conversion Deterioration Demolition / Disaster
1.6m Net Removals 3.3m
19.5m Assuming all variables in equilibrium, experts suggest housing starts should be at an annualized rate of 1.95m for 2005-14, however many factors impact actual starts.
Excess Housing Stock
Affordability
Consumer Confidence
Macro Economic Conditions
New Starts Excess New Stock Excess Vacant Stock
Housing Prices Cost of Financing
Belief that house values will appreciate
Unemployment Rate Disposable Income
Source: Joint Center for Housing Studies of Harvard University Asia Investor Roadshow, November 2008 USA Analyst Site Visit 2008
26
26
13
Annual underlying long-term demand of ~1.80m* US housing starts is based on expected household growth, second homes and replenishment homes Projection for Long-Run Demand for New Housing1, 2005-2014 Household growth Additional second homes & ∆ vacancies Net removals Total2
14.6m 1.6m 3.3m 19.5m
Housing starts (millions)
US Housing Underlying Demand
(Including manufactured housing)
25 20
18.0
19.5
17.6
17.0
Net removals Second homes & vacancies
15 10
Household growth
5 0
1974-83
1984-93
1994-03
2005-14
* Excludes manufactured homes which brings up underlying demand of housing starts to 1.95m 1. Joint Center for Housing Studies of Harvard University 2. This includes 1.5m of manufactured housing
27
Asia Investor Roadshow, November 2008 USA Analyst Site Visit 2008
27
Bricks has optimised the network at lower capacity, currently operating at ~38% vs 56% FY08 and 79% FY07 US Brick
1H FY07
1H FY09 estimate
2H FY08 Jul
Plant
Aug
Sep
Oct
Nov
Dec
Augusta Plant 013 Augusta Plant 014 Augusta Plant 015 Augusta Plant 016 Lexington 030 Salisbury Plant 081 Salisbury Plant 082 Van Wyck W/M 041 Van Wyck W/M 042 Macon, GA 020 Phenix City W/M 141 Phenix City W/M 143 Phenix City W/M 144 Phenix City W/M 145 Smyrna Plant 091 Bessemer Plant 165 Bessemer Plant 166 Gleason 060 Macon, MS 050
Ramp Up - commissioning
Terre Haute, IN 070 Henderson 100 Marshall 110 Muskogee 120 Union City 130
At Capacity
Slowed
Asia Investor Roadshow, November 2008 USA Analyst Site Visit 2008
Temp. Close
Mothballed
Twin Kilns
28
28
14
MonierLifetile currently operating at ~20% of capacity, compared with 27% in FY08 vs 48% FY07 and 75% FY06 MonierLifetile
1H FY07
1H FY09 estimate
2H FY08
Plant Gilroy, CA
Jul
Aug
Sep
Oct
Nov
Jul
Aug
Sep
Oct
Dec
Denver, CO Boca Raton, FL Henderson, NV Kansas, MO Katy, TX Lake Wales #1, FL Lake Wales #2, FL Pompano Beach, FL Tacoma, FL Lathrop, CA Phoenix, AZ Rialto, CA Stockton, CA
US Tile
Nov
Dec
Corona - Line 4 Corona - Line 5
Commissioning Phase
Ione Trinidad
Slowed
At Capacity
Temp. Close
Mothballed
29
Asia Investor Roadshow, November 2008 USA Analyst Site Visit 2008
29
Vacancy rates in Australia are at low levels but yields are beginning to improve supporting residential investment Capital City House Annual Yield (%) 8 7 6 5
3
Perth Brisbane Melbourne
2
Sydney
4
1 Jun-08
Jun-07
Jun-06
Jun-05
Jun-04
Jun-03
Jun-02
Jun-01
Jun-00
Jun-99
Jun-98
Jun-97
Jun-96
Jun-95
Jun-94
Jun-93
Jun-92
Jun-91
Jun-90
Jun-89
0
Source: ABS
Asia Investor Roadshow, November 2008 USA Analyst Site Visit 2008
30
30
15
Strong levels of population growth including net overseas migration are underpinning underlying housing demand Total net overseas migration growth (MAT)
Total population growth (MAT) States
Total*
States
Total*
160,000
350,000
100,000
200,000
140,000
300,000
90,000
175,000
80,000 60,000
150,000
Mar-08
0 Mar-00
0
Mar-08
Mar-07
Mar-06
Mar-05
Mar-04
Mar-03
Mar-02
Mar-01
50,000
SA 25,000
WA
10,000
0 Mar-00
QLD
20,000
50,000
0
75,000
30,000
Mar-07
SA
VIC
Mar-06
WA
100,000
NSW
40,000
100,000
20,000
125,000
50,000
Mar-05
40,000
200,000
150,000
Total*
Mar-04
VIC
NSW
60,000
70,000
Mar-03
80,000
250,000
Mar-02
QLD
100,000
Mar-01
Total*
120,000
Source: ABS * Total includes NSW, VIC, QLD, WA, SA only
31
Asia Investor Roadshow, November 2008 USA Analyst Site Visit 2008
31
Australian markets forecast to grow significantly over next few years Australian Building Activities – Value of Work Done1
% change
$97/98 billion
65
5.8
60
4.8
55
2.3
2.7
2.6
4.8 (0.4) 9.3
3.4
RHS&B
(1.7)
50 45 40
1.2
(3.0) (2.2)
(2.1)
(1.1)
Non-dwelling
(1.1)
Dwelling2
35 30 25 20 15
8.5
8.4
11.9
7.4
10
Asia Investor Roadshow, November 2008 USA Analyst Site Visit 2008
FY13f
FY12f
FY11f
FY10f
FY07
FY08e
1. Source: ABS & BIS Shrapnel 2. Includes Alterations and Additions
FY06
FY05
FY04
FY03
FY02
FY01
FY00
FY99
FY98
FY97
FY96
FY95
FY94
FY93
0
FY09f
5
32
32
16
Stronger pricing despite volume pressures in key NSW and US markets during FY2008 FY2008 v FY2007 ∆ Prices / Volume / EBITDA
Building Products, Australia
Construction Materials, Australia
USA
Bricks Roofing Masonry Plasterboard Timber Windows Cement Concrete & Quarries Asphalt Bricks Clay Tiles Concrete Tiles1 Flyash Construction Materials2
1. MonierLifetile JV is equity accounted – Boral’s share of revenue does not appear in consolidated accounts. 2. Includes Oklahoma concrete and quarry operations acquired in August 2007.
33
Asia Investor Roadshow, November 2008 USA Analyst Site Visit 2008
33
PEP savings targeted at 3-4% of compressible costs, averaging 3.4% over past five years, continue to be delivered across the Group A$m 160
3.8
PEP savings
%
% of compressible costs
4
3.4 3.1
3.2
3.4
120
3
80 120
106
124
142
2
151
40
1
0
0
FY04
FY05
Asia Investor Roadshow, November 2008 USA Analyst Site Visit 2008
FY06
FY07
FY08
34
34
17
Boral has been active around capital management and its balance sheet April 2008: Off-market share buy-back $114m or ~3.3% of issued shares at $5.65 / share April 2008: Issuance of US$382m of unsecured notes in US private placement market August 2008: US$700m syndicated bank term credit facility with maturity in August 2011
Debt A$m
Debt Maturity Profile Adjusted for US$700m committed standby
As at 30 June 2008
550 500 450 400 350 300 250 200 150 100 50
AUD & USD Commercial Paper Bank Debt US Private Placement
