The boss of cement and construction materials company Adelaide Brighton expects Australia's residential building market to decline this year, weighed down by stagnant wages, low consumer confidence and access to capital.
Chief executive Nick Miller said Australia's "relatively low" consumer confidence was probably also hit by the bushfires and floods over summer and was not helped by the recent coronavirus outbreak.
"Australian residential construction approvals declined sharply, by more than 18.5 per cent on seasonally adjusted terms for the 12 months to December 2019. Residential construction is forecast to decline until 2021, at which time it is expected to return to growth," he said.
Cement giant Adelaide Brighton is targetting cost savings of $30 million in 2020.Credit: Photo: Bryan Charlton
Mr Miller said his expectation for softer residential construction this year was across the country, adding that there was some evidence of an uptick in Western Australia and on Queensland's Sunshine Coast.
"It is different state by state. The resources states are starting to build improved confidence," he said.
The company's exposure to the residential and multi-residential construction market is about 30 per cent of its earnings.
"That's why I've got a deliberate strategy to get more exposure to the infrastructure sector," Mr Miller told The Age and The Sydney Morning Herald.
"We're building our capability to be more active in that space, where we've got the full offering of vertical supply chain into that market," he said.
Adelaide Brighton reported its full-year results for the 2019 calendar year on Wednesday, confirming that its revenue fell 7 per cent to $1.52 billion, a result in line with consensus.
The company's underlying net profit fell 35.6 per cent to $123 million, which was in line with guidance and consensus expectations. Statutory net profit was down 74.5 per cent to $47.3 million, and was brought down by a $69.8 million impairment.
Mr Miller said the company's 2019 result was hit by softer construction material markets on Australia's east coast, particularly in Queensland and NSW, and that this was partly driven by lower consumer confidence and an oversupply of multi-residential dwellings.
The company also experienced cost pressures on transport, energy, raw materials and sea freight which ate into its margins. It is targeting cost savings of $30 million in 2020, to offset cost "headwinds" of about $20 million.
Shares in Adelaide Brighton were down 5.3 per cent to $2.87 in late afternoon trading. The broader market slumped 2.5 per cent.
Adelaide Brighton will pay a fully franked 5¢ final dividend on April 28, down from 11¢ on the prior corresponding period.
The company said it expected a full year 2020 profit to be about 10 per cent below 2019's underlying profit of $123 million.
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