Boral CEO signals further price rises to combat inflation challenge
Boral chief executive Vik Bansal unveiled a stronger than expected outlook for the building products group and signalled there will be more cost-cutting and further price increases to combat high inflation.
Boral, which is 70 per cent owned by billionaire Kerry Stokes and his family through Seven Group Holdings after a successful takeover in 2021, reported a strong rise in underlying revenue and earnings for the December half year on Tuesday.
Boral reported a 12 per cent rise in revenue from continuing operations to $1.68 billion and a 53 per cent rise in underlying net profit to $56.8 million and said earnings before interest and tax (EBIT) for the current half year will be in line with the $95.3 million of EBIT generated in the December half year.
The news saw Boral shares spike as much as 12 per cent on Wednesday morning to a high of $3.95 despite the company saying it will not pay a dividend for the half year due to limited franking credits.
UBS analyst Lee Power said it was a positive result with solid volume and price growth across most of Boral’s businesses.
“Given the first half pricing traction, second half FY23 guidance for flat half-on-half EBIT appears conservative if Boral can continue to do well on pricing traction (albeit with current multiple already pricing in a rapid recovery),” he said.
Boral posted a net profit of more than $1 billion for the prior December half, but this was boosted by a $931 million gain on the sale of its US businesses.
“Today, in my first set of financial and operational results for Boral, I am pleased to report a half on half improved performance on key metrics amidst a challenging inflationary and operating environment,” Bansal said.
He said price erosion is not an option for Boral, signalling its focus on keeping price rises above the cost inflation it is experiencing.
“If you notice in my outlook statement I’m not talking about margin expansion at all, at this point,” he said.
Bansal says inflation will continue to be an issue this half year due to higher costs being baked into the price of goods Boral needs for its business.
“There’s a lot of chatter about inflation getting tapered, what people are not realising is, there’s a whole tail-end effect of inflation,” he said.
“Any dollar I spent today with any vendor either has an inventory, which has an inbuilt cost of higher inflation, …. we got to keep seeing this at least for another half year.”
A research note from Barrenjoey analyst, Brook Campbell-Crawford, said inflation remains a challenge for the business with energy costs up by $40 million compared to the prior December half year.
Bansal took over as Boral’s CEO in October last year from Zlatko Todorcevski.
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