Category: Financial Markets

Investment Thesis

• Macro conditions remain uncertain in key regions.
• Strong pipeline of infrastructure projects over the next 2 years is a positive but timing and execution is a risk. 
• Solid balance sheet position provides some flexibility to the Company to pursue growth. 
• Leading positions as a lime producer, concrete products producer and cement and clinker supplier.
• Outlook for lime looks relatively positive with higher infrastructure projects and resource sector activity
• Cost-out and vertical integration (cement) programs expected to deliver cost benefits that exceed cost headwinds of $10m in FY21.

Key Risks

• Macro conditions remain uncertain in key regions.
• Strong pipeline of infrastructure projects over the next 2 years is a positive but timing and execution is a risk. 
• Solid balance sheet position provides some flexibility to the Company to pursue growth. 
• Leading positions as a lime producer, concrete products producer and cement and clinker supplier.
• Outlook for lime looks relatively positive with higher infrastructure projects and resource sector activity
• Cost-out and vertical integration (cement) programs expected to deliver cost benefits that exceed cost headwinds of $10m in FY21.

FY21 results summary: Compared to pcp: 

• Revenue increased +8% to $1,569.2m with increased sales volumes experienced for all products other than lime (as a result of lower Alcoa volumes) and strong cement pricing, partially offset by lower average prices for lime amid pricing resets across key alumina contracts. 
• EBITDA margin declined -120bps to 17.5% and included Covid-19 impacts and interrupted production, much of which are expected to be non-recurring (non-recurring impacts were $16.2m with management expecting $10.3m of these to be non-recurring, with higher demurrage and pallet costs expected to continue in the short term). 
• Net finance cost declined -6%, as a result of lower average borrowings which saw interest cover improve +1.1x to 14.4x. 
• Operating cash flow declined -23.8% to $195.2m, in line with expectations, as pcp benefited from tax refunds. 
• Capex increased +3% to $140.5m million ($106m million stay-in-business capex + $34.5m for development). 
• Joint Ventures earnings contribution increased +23.8% to $33.3m, with Sunstate’s contribution improving by +115% driven by strong demand across the southeast Queensland construction sector, ICL increasing earnings contribution by +13% and Mawsons increasing earnings contributions by +23%. 

Capital management

• Strong balance sheet with liquidity of $453.7m (down -13.6% over pcp) and net debt of $437.4m (up +17.5% over pcp), representing a leverage ratio of 1.6x underlying EBITDA (vs 1.4x in pcp) and gearing of 34.5% (up +400bps over pcp), both well within banking covenants and Board’s capital management target range. 
•  Return on Funds Employed (ROFE) declined -30bps over pcp to 10.6%, however, remained above cost of capital (normalising for Covid-19 and operational non-recurring costs of $16.2m, ROFE increased to 11.6%), with management expecting long-term ROFE improvement coming from Kwinana Upgrade project cost savings, development of downstream land investments and ongoing cost-out. 
• The Board declared fully franked final ordinary dividend of 7cps (down -3.45% over pcp), bringing full year total to 12.5cps, up +4.2% over pcp and representing a payout ratio of 68.5% of underlying earnings, within the Board’s target range of 65-75%. 

Cost savings above target

Management remains focused on their cost reduction program, delivering gross savings of $26.1m through operational efficiencies, procurement, and a more simplified organisational structure, equating to net cost out of $13.6m, +36% higher than expected.

Company Profile

Adbri Ltd (ABC) is an Australia listed construction materials and liming producing company. ABC is Australia’s leading (1) lime producer in the minerals processing industry; (2) concrete products producer; and (3) cement and clinker importer. ABC is Australia’s number two cement and clinker supplier to the Australian construction industry and number four concrete and aggregates producer.

(Source: Banyantree)

General Advice Warning

Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.