Boral Limited Annual Review 2008 Boral It’s not business as usual at Boral Boral Limited ABN 13 008 421 761 Contents for the 2008 Annual Review It’s not business as usual at Boral 2 Chairman’s Review 6 Managing Director’s Review 8 Financial Highlights 12 Summary of Reporting Groups 14 Financial calendar* Review of Operating Divisions Australian Construction Materials 16 Ex dividend share trading commences 25 August 2008 Cement 18 Record date for final dividend 29 August 2008 Clay & Concrete Products 20 Final dividend payable 18 September 2008 Timber 2 2 Plasterboard 24 Annual General Meeting 24 October 2008 USA 26 Half year 31 December 2008 Management Committee 28 Half year profit announcement 11 February 2009 Financial Review 29 Ex dividend share trading commences 23 February 2009 Board of Directors 31 Record date for interim dividend 27 February 2009 Corporate Governance 32 Interim dividend payable 3 April 2009 Directors’ Report 38 Year end 30 June 2009 Remuneration Report 42 Concise Financial Report 50 * Timing of events is subject to change. Statutory Statements 65 Shareholder Information 66 Financial History 68 Glossary and Abbreviations 69 Our 2008 Sustainability Report can be found on the reverse side of this Annual Review. The Annual General Meeting of Boral Limited CEO and Managing Director Boral Limited will be held at the ABN 13 008 421 761 Rod Pearse Level 39, AMP Centre City Recital Hall, Angel Place, Chief Financial Officer 50 Bridge Street, Sydney NSW 2000 Ken Barton Sydney on Friday 24 October at GPO Box 910, Sydney NSW 2001 Company Secretary 10.30am. Telephone: (02) 9220 6300 Michael Scobie International: +61 2 9220 6300 Auditor Facsimile: (02) 9233 6605 KPMG The Annual Review includes a concise International: +61 2 9233 6605 report containing abbreviated financial Internet: www.boral.com.au statements. Detailed financial statements Email: [email protected] are available in the separate 2008 Financial Report, which shareholders Stock Exchange Listing may access on Boral’s website Australian Securities Exchange www.boral.com.au or request free Share Registry of charge by phoning Boral’s share c/- Link Market Services registry on (02) 8280 7133 or via email to Level 12 [email protected] or 680 George Street, Sydney NSW 2000 by writing to Link Market Services, Locked Locked Bag A14, Bag A14, Sydney South NSW 1235. Sydney South NSW 1235 Boral Limited is a company limited by Telephone: (02) 8280 7133 shares, incorporated and domiciled in International: +61 2 8280 7133 Australia. Facsimile: (02) 9287 0303 International: +61 2 9287 0303 Front Cover: The 20km long Gateway Motorway upgrade project in Brisbane includes Internet: the duplication of the Gateway Bridge. The new www.linkmarketservices.com.au 1.6km long bridge will link both sides of the Email: Brisbane River with its 130 metre long and 80 metre high mainspan. [email protected] Boral has been working with the developer, Leighton Abigroup Joint Venture on this project for Queensland Motorways Limited. We delivered 156,000m3 of concrete to the project in 2007/08 and will supply a total of 250,000m3 by the completion of the project. 1 It’s not business as usual at Boral Boral is an integrated, resource-based manufacturing company with strong upstream and downstream positions in building and construction materials markets in Australia, the USA and in Asia. The markets in which we operate are cyclical in nature. Dealing with cyclical market swings is business as usual for Boral, but in 2008, it is not business as usual. The spectacular cyclical downturn in the USA has coincided with several other extraordinary factors to create a particularly challenging business environment. Boral’s 2008 performance highlights the growing importance of Boral’s largest reporting group, Construction Materials, Australia. Strengthening results from the Australian business (despite the continued housing downturn) partially offset a dramatic decline in Boral’s offshore earnings. Key financial results for 2008: • Net reported profit after tax down 19% to $243 million • Sales revenue up 6% to $5.2 billion • EBITDA1 down 10% to $688 million – Australian EBITDA up 9% to $657 million – Offshore EBITDA down 82% to $27 million • EBITDA1 to sales margin of 13.2% • Earnings per share1 down 17% to 41.4 cents • Full year fully franked dividend maintained at 34 cents 1. Excluding significant item Boral Limited Annual Review 2008 2 Challenges Boral faces a number of challenges due to several extraordinary external factors. These simultaneous events have created a business environment that is not business as usual. US housing activity down 1 45% from its 2006 peak 2500 In 2007/08 total US housing (‘000) 2000 ts starts were down 27% r ta to 1.13 million compared S 1500 to 1.55 million in the prior year, leading to Boral’s 1000 ousing USA EBIT decreasing from H a A$95 million profit to a US 500 l A$27 million loss. ota T 0 8 00 1974 1986 1996 1970 1976 1978 1980 1982 1988 1990 1992 1994 1998 2000 2002 2004 2006 2 1972 1984 Energy and other input costs 2 increase dramatically during 2008 250 Jul-07) 200 to Overall Boral’s costs grew by 6.5%. For example 150 GasOil and Natural Gas (indexed prices up 112% and 97% es 100 c I respectively, impacting pr transport and manufacturing 50 GasOil 0.5% costs. gas US Nymex natural gas & l 0 oi ul 08 Jul 07 Jul 06 J Jan 07 Jan 08 NSW housing activity at 3 40 year lows 40000 35000 (MAT) ts 30000 r Australian housing ta 25000 S activity remains at low 20000 levels, and well short 15000 ousing of underlying demand – H 10000 especially in NSW where NSW Boral earns around 5000 l 40% of its Australian 0 ota 8 T revenues. 00 1974 1986 1996 1970 1976 1978 1980 1982 1988 1990 1992 1994 1998 2000 2002 2004 2006 2 1972 1984 Boral Limited Annual Review 2008 3 Demand for concrete in 4 Australia at record levels 140 Solid levels of infrastructure and non-dwelling activity drove industry concrete 120 volumes up 7%, and Boral’s umes l construction Materials EBIT O v up 10% to A$351 million. To ete 100 meet this growing demand, cr Boral is investing in further on Australia c construction materials NSW capacity. ABS 80 08 l Jul 01 Jul 99 Ju Jan 00 Jan 02 Jan 03 Jan 04 Jan 05 Jan 06 Jan 07 Despite plasterboard growth, Asian 5 profits declined by A$5 million 25 ) M 20 While plasterboard (A$ 15 markets improved, 10 contributing to a 29% nings r 5 increase in lBGA’s 0 underlying earnings -5 (before exchange rate impacts), Asian -10 LBGA Construction materials construction materials -15 sian segment ea margins fell significantly A 008 and trading conditions 2001 2007 2002 2003 2004 2005 2 2006 remain challenging. Global credit crisis impacts 6 liquidity and borrowings rk 350 hma 300 A global credit c tightening was 250 experienced in ) 200 2007/08 leading to S p ead to ben B diminished market ( 150 pr liquidity and higher 100 borrowing costs. 50 owing s JULI Banks Index rr 0 bo ul 08 Jul 07 J Jan 07 Jan 08 Government progresses 7 emissions trading scheme The “carbon pollution reduction Scheme”, scheduled for introduction in 2010, will impact emissions-intensive, trade-exposed (EITE) industries such as the cement industry. Recognition of cement as an EITE industry and provision of a “level playing field” for domestic competitors and importers is vital for Boral. Boral Limited Annual Review 2008 4 Response We recognise that in a not business as usual environment, the best response is to focus on the things that are within our control and to do them particularly well. To manage the major downturn in US housing activity, Boral is implementing a rigorous cost saving and plant slowdown program, 1 but still investing for market recovery. • US$42.5 million of cost saving programs in Bricks and Monierlifetile (Boral’s share) have been implemented, with US$11 million of savings already delivered. An incremental benefit of US$31.5 million is expected in 2008/09. An extensive plant slowdown/mothballing program is in place in bricks and roof tiles to match production with sales and avoid an inventory build. By year end, utilisation was ~40% and ~30% in bricks and roof tiles, respectively. • A new US$55 million brick plant in Terre Haute, Indiana, and a US$30 million clay tile plant in Ione, California were commissioned in 2008. These new plants position Boral well when markets recover and, during the downturn, these low cost plants will operate at high utilisation, allowing higher cost capacity to be mothballed. • We are embarking on a step change program in the Denver and Oklahoma construction materials businesses including plant optimisation, an alternative fuels study and integration of systems and overheads. To manage energy, fuel and other cost increases, Boral is increasing 2 prices and investing in alternative fuel strategies. • We are strongly focused on recovering costs through price increases. In Australia we have announced August / September 2008 price increases in concrete ($12.50 per cubic metre), quarries ($1 - $3 per tonne), and cement ($15 per tonne). Additionally, price increases have been announced for most building products and fuel price levies introduced for bricks, roof tiles and masonry products. • In the USA, price increases and energy surcharges have been announced and an through alternative fuels strategy the new Terre Haute brick plant is operating on up to 80% landfill gas, and overall in the US brick business, we are targeting to source around 30% of energy from alternative (lower cost) fuels.