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Installed Building ProductsBoral 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
Review of Operating Divisions
Australian Construction Materials 16
Cement 18
Clay & Concrete Products 20
Timber 22
Plasterboard 24
USA 26
Management Committee 28
Financial Review 29
Board of Directors 31
Corporate Governance 32
Directors’ Report 38
Remuneration Report 42
Concise Financial Report 50
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.
Financial calendar*
Ex dividend share trading commences 25 August 2008
29 August 2008
Record date for final dividend
18 September 2008
Final dividend payable
24 October 2008
Annual General Meeting
31 December 2008
Half year
Half year profit announcement
11 February 2009
Ex dividend share trading commences 23 February 2009
27 February 2009
Record date for interim dividend
3 April 2009
Interim dividend payable
30 June 2009
Year end
* Timing of events is subject to change.
CEO and Managing Director
Rod Pearse
Chief Financial Officer
Ken Barton
Company Secretary
Michael Scobie
Auditor
KPMG
The Annual General Meeting of
Boral Limited will be held at the
City Recital Hall, Angel Place,
Sydney on Friday 24 October at
10.30am.
The Annual Review includes a concise
report containing abbreviated financial
statements. Detailed financial statements
are available in the separate 2008
Financial Report, which shareholders
may access on Boral’s website
www.boral.com.au or request free
of charge by phoning Boral’s share
registry on (02) 8280 7133 or via email to
registrars@linkmarketservices.com.au or
by writing to Link Market Services, Locked
Bag A14, Sydney South NSW 1235.
Boral Limited is a company limited by
shares, incorporated and domiciled in
Australia.
Front Cover: The 20km long Gateway
Motorway upgrade project in Brisbane includes
the duplication of the Gateway Bridge. The new
1.6km long bridge will link both sides of the
Brisbane River with its 130 metre long and 80
metre high mainspan.
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.
Boral Limited
ABN 13 008 421 761
Level 39, AMP Centre
50 Bridge Street, Sydney NSW 2000
GPO Box 910, Sydney NSW 2001
Telephone: (02) 9220 6300
International: +61 2 9220 6300
Facsimile: (02) 9233 6605
International: +61 2 9233 6605
Internet: www.boral.com.au
Email: info@boral.com.au
Stock Exchange Listing
Australian Securities Exchange
Share Registry
c/- Link Market Services
Level 12
680 George Street, Sydney NSW 2000
Locked Bag A14,
Sydney South NSW 1235
Telephone: (02) 8280 7133
International: +61 2 8280 7133
Facsimile: (02) 9287 0303
International: +61 2 9287 0303
Internet:
www.linkmarketservices.com.au
Email:
registrars@linkmarketservices.com.au
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.
1 US housing activity down
45% from its 2006 peak
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In 2007/08 total US housing
starts were down 27%
to 1.13 million compared
to 1.55 million in the prior
year, leading to Boral’s
USA EBIT decreasing from
a A$95 million profit to a
A$27 million loss.
2 Energy and other input costs
increase dramatically during 2008
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Overall Boral’s costs grew
by 6.5%. For example
GasOil and Natural Gas
prices up 112% and 97%
respectively, impacting
transport and manufacturing
costs.
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US Nymex natural gas
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3 NSW housing activity at
40 year lows
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Australian housing
activity remains at low
levels, and well short
of underlying demand –
especially in NSW where
Boral earns around
40% of its Australian
revenues.
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Boral Limited Annual Review 2008
3
4 Demand for concrete in
Australia at record levels
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Solid levels of infrastructure
and non-dwelling activity
drove industry concrete
volumes up 7%, and Boral’s
construction Materials EBIT
up 10% to A$351 million. To
meet this growing demand,
Boral is investing in further
construction materials
capacity.
5 Despite plasterboard growth, Asian
profits declined by A$5 million
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While plasterboard
markets improved,
contributing to a 29%
increase in lBGA’s
underlying earnings
(before exchange
rate impacts), Asian
construction materials
margins fell significantly
and trading conditions
remain challenging.
6 Global credit crisis impacts
liquidity and borrowings
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A global credit
tightening was
experienced in
2007/08 leading to
diminished market
liquidity and higher
borrowing costs.
7 Government progresses
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.
1 To manage the major downturn in us housing activity, Boral is
implementing a rigorous cost saving and plant slowdown program,
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.
2 To manage energy, fuel and other cost increases, Boral is increasing
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.
• performance Enhancement programs (pEp) across the company delivered $151 million of
savings in 2007/08, a 3.4% reduction in compressible costs.
3 Despite the protracted housing downturn in Australia, especially in
NSW, Boral’s price management and capacity planning strategies
are allowing the Company to remain competitive.
• Despite volume pressures, Building products earnings increased due to disciplined price and
cost management programs.
• Matching production with sales demand continues, with East coast brick plant utilisation ~75%
in 2008. post year end, Boral’s Grafton parquetry plant was closed and production at the Walcha
timber mill was suspended as a result of the continued NSW downturn and high input costs.
• Growth investments have been directed to higher growth states. Boral’s new low-cost
plasterboard plant at pinkenba, which was commissioned in 2008 for a net investment
of ~$119 million, will supply a growing Queensland market.
Boral Limited Annual Review 2008
5
4 Infrastructure activity is delivering record levels of demand for
concrete in Australia, (outside NSW), with Boral investing to
supply growing markets.
• Around 45% of Boral’s A$2.3 billion of growth spend since demerger has been invested into
construction materials to increase cement capacity, maximise quarry output and expand Boral’s
concrete and asphalt networks into growth regions around Australia. An A$85 million (total)
investment is underway in Sunstate cement to lift clinker storage and cement grinding capacity
from 1.0 million to 1.5 million tonnes per annum.
• low levels of demand in NSW are resulting in under-utilisation of the Berrima cement works with
excess capacity being used to supply wholesale purchases and to supply interstate.
5 With mixed conditions across Asia, cost disciplines, price increases
(where possible) and investments to strengthen Boral’s leading
positions are continuing.
• In the lBGA plasterboard joint venture, price increases and a structured cost reduction program
have offset input cost increases and enhanced margins.
• lBGA’s leading positions continue to strengthen. US$70 million was invested into new plants in
Dangjin (korea), chengdu (china) and rajasthan (India) with commissioning completed in 2008.
A further US$48 million investment in Baoshan (China) was announced in August 2008.
• In construction materials, focus is on delivering improved results through targeted volume growth,
cost disciplines, and where possible, price increases. Due to continued challenging conditions,
in FY08 we wrote-off the $31.9 million of goodwill which arose on acquisition of the Thailand
business in 2004.
6 Despite the global credit crisis, Boral maintains a robust balance
sheet and continues its value adding capital management initiatives.
• Boral’s balance sheet remains robust, with gearing (debt/equity) of 52% within our target of
40%-70%. cash flow from operations increased by $100 million to $582 million in FY08 and
stay-in-business capital expenditure was maintained at 70% of depreciation.
• value-adding capital management initiatives were undertaken including a $114 million off-market
share buy-back, which was completed in April 2008.
• In April 2008, we completed an issuance of US$382 million of 10 and 12 year unsecured notes
in the US private placement market and following year end a US$600 million note issuance
facility expiring in August 2009 was replaced by a US$700 million facility expiring in August
2011. Boral’s debt maturity now averages around 6 years. Our facilities ensure funding is
available for current projects and potential market opportunities.
7 To manage the impact of the introduction of an Australian emissions
trading scheme, Boral is improving its energy and emissions
reporting, and investing in emissions abatement programs.
• The Government’s Green paper on the carbon pollution reduction Scheme indicates that the
cement and lime industries are likely to be recognised as EITE industries and that compensation
will take place for such industries. We remain concerned about the phasing out of compensation
over time.
• Boral’s 2007/08 emissions of 3.79 million tonnes cO2-e were 1% higher than the prior year due
to a lift in production volumes in Australia, largely offset by a decline in USA emissions.
• Our focus on reducing emissions continues, particularly in cement, transport and brick operations.
Our emissions produced per unit of cementitious material sold is 13% lower than 1990 levels.
In the USA, 30% of our energy use is currently sourced from lower cost, lower greenhouse gas
intensive alternative fuels.
Boral Limited Annual Review 2008
6
Chairman’s Review
A solid 2007/08 result in
challenging conditions
2007/08 was a challenging year for many
of Boral’s businesses, particularly our
building products businesses in the USA
and construction materials operations in
Asia. In Australia, our businesses in New
South Wales continued to face low levels
of activity, but elsewhere around the
country strong levels of infrastructure and
non-dwellings activity saw volume lifts
and solid improvements in earnings.
We reported a 6% increase in sales
revenue to $5.2 billion but a 10% decline
in Boral’s underlying EBITDA1 (earnings
before interest, tax, depreciation and
amortisation) to $688 million. Our
reported profit after tax (pAT) of
$243 million was down 19% and
underlying pAT of $247 million (excluding
goodwill and tax provision adjustments)
was 17% lower.
In Australia, housing activity remained
at low levels, especially in New South
Wales. However, the overall value of
work done in Australian building and
construction was up by nearly 5% year-
on-year as increased work in Australian
non-dwellings and major projects
offset the soft housing market. Boral’s
Australian sales revenues were up
13% due to solid price gains, volume
increases and growth benefits. EBITDA
in construction Materials was up 8% to
$489 million and in Building products
was up 11% to $168 million. The results
were underpinned by strong markets in
Queensland and victoria which offset
softer conditions in Western Australian
housing activity and continued weakness
in New South Wales.
In the USA, the continued deterioration
in the housing market, particularly in
the second half of the year, saw a 13%
decline in US dollar revenues and a
decrease in EBITDA from US$102 million
to US$10 million. Total housing starts
were down 27% year-on-year to 1.13
million starts. This compares with peak
levels of demand above 2.0 million starts
experienced just a couple of years ago
in 2005/06. lower volumes, increased
raw material costs and one-off costs (of
US$4 million) associated with programs
to reconfigure our brick and roof tile
networks contributed to the severe fall in
earnings.
In Asia, improvements in housing
markets in Indonesia, china and South
korea benefited our joint venture
plasterboard business, lBGA. lBGA’s
earnings in US dollars were up 29%
before exchange rate impacts, reflecting
volume and price increases as well as
benefits from cost reductions and growth
initiatives. In Australian dollars, Boral’s
equity accounted profit from lBGA was
up 12% to $18.1 million. Unfortunately,
this was offset by a decline in earnings
from Boral’s construction materials
operations in Indonesia and Thailand.
Overall, EBITDA from Asia was down
22% to $16 million. We continue to face
challenging market conditions in our
Thailand concrete and quarry business
and we have written off the $31.9 million
of goodwill which arose on acquisition of
the business in July 2004.
A focus on managing well through
the downturns
The US business has been very profitable
and a strong contributor to Boral’s
earnings over the years. When market
conditions were strong in 2005/06 the
business delivered an EBIT profit of
A$186 million compared with a loss of
A$27 million in 2007/08.
No-one enjoys reporting a decline in
annual earnings or losses from any
business, especially those that have
historically delivered substantial returns
and have very strong manufacturing
and market positions. Whilst the result
is disappointing, we have long-term
confidence in Boral’s US markets and our
management who we believe are doing
a commendable job of managing the US
business through the downturn.
It is well understood within the company
that reducing fixed costs, increasing
prices and avoiding a build in inventory
levels by matching production with
sales volumes are critically important
during the downturn. Our plant network
optimisation and structured cost
reduction programs in bricks and roof
tiles are reducing the adverse impacts of
historically low sales volumes.
Management expects that benefits
from the step change program in bricks
together with Boral’s share of benefits
from the Monierlifetile step change
program will deliver Boral an incremental
benefit of US$31.5 million in 2008/09
on top of the US$11 million delivered
in 2007/08.
Whilst in Australia the housing downturn
has been far less severe, it has been a
very long and slow downturn that has
seen reduced profitability since the
peak in 2003/04. Boral’s businesses,
particularly on the East coast, have
managed the reduced volumes through
an ongoing program of plant slowdowns
and temporary closures. Our East coast
brick business continues to operate
at around 75% of capacity to avoid
over-producing bricks, which in past
downturns has led to price pressures
to move stock. pleasingly, prices have
held or increased through the housing
downturn, despite volume pressures.
Shareholder returns
A decline in Boral’s share price of 37%
during the year reflected the impacts of
the broader equities markets coupled
with the earnings impact of the USA and
New South Wales housing downturns.
Despite cyclical earnings pressures, a full
year fully franked dividend of 34.0 cents
per share has been maintained for four
years. The full year dividend represents
a grossed up dividend yield of 7.3%
per annum (after franking) on Boral’s
weighted average share price for the year
of $6.65.
Boral’s total shareholder return (TSr)
from share price appreciation and
dividends was 16% per annum over the
eight and a half years from demerger to
30 June 2008, which placed the stock
in the second quartile of the ASX 100
companies over the same period. Boral’s
TSr under-performed in 2007/08 with
a TSr of -33% compared with the TSr
of the ASX 100 Index over the period
of -16%.
Boral Limited Annual Review 2008
which was largely offset by a $28.1 million write-back of tax provisions.
1. Excluding significant items reflecting a $31.9 million write-down of goodwill in Thailand construction materials,
“ It is well understood within the company that reducing
fixed costs, increasing prices and avoiding a build in
inventory levels by matching production with sales
volumes are critically important during the downturn.”
Ken Moss, cHAIrMAN
7
Boral’s Board
Dr Bob Every was appointed as a non-
executive Director of Boral limited in
September 2007. His appointment was
confirmed at the 2007 Annual General
Meeting.
Elizabeth Alexander, who joined the
Board in 1994, will retire as a Director
at this year’s Annual General Meeting.
Together with the Board, I acknowledge
the significant contribution that Elizabeth
has made to Boral, including her valued
contribution as Chair of the Audit
Committee.
At this year’s Annual General Meeting,
shareholders will be asked to confirm
the appointment of a new Director with
appropriate financial expertise to replace
Elizabeth when she retires.
The Board remains confident in the ability
of Boral’s cEO and Managing Director,
rod pearse, to deliver Boral’s strategic
imperatives. Currently in his ninth year
of leading the Company, Rod continues
to demonstrate Boral’s values of
leadership, respect, focus, performance
and persistence, which have underpinned
Boral’s strong and effective
workplace culture.
Boral’s people
The Board also remains confident in the
ability of the Management Committee to
deliver Boral’s strategy.
The Management committee has been
a stable team of senior executives with
considerable experience in Boral. In
August 2008, however, Boral’s long-
serving Company Secretary and General
Manager of Corporate Services, Michael
Scobie, announced his intention to retire.
Michael, who joined Boral through the
BMI acquisition in 1982 and has 35 years
of service with both organisations, has
contributed a great deal to Boral. On
behalf of the Board I thank Michael for
his valued contribution.
Margaret Taylor will take over the role of
General Counsel and Company Secretary
of Boral limited from November 2008.
Margaret joins Boral after 17 years with
law firm Minter Ellison in Brisbane,
Sydney and london and almost two
years as regional counsel Australia/Asia
with BHp Billiton.
I thank Boral’s management team and all
of Boral’s employees for their hard work
and contribution over the past year.
Corporate governance and
remuneration
Boral’s Directors support appropriate
and transparent corporate governance
processes and controls. On page 32 to
37 of Boral’s Annual review, we report
on our corporate governance activities
in accordance with the principles of
Good Corporate Governance and Best
practice recommendations of the ASX.
The separate remuneration report for
shareholders as part of the Directors’
report (on pages 42 to 49) provides
extensive information on the company’s
remuneration structures.
In reviewing the remuneration report
it is important for shareholders to be
mindful that executive remuneration is
not driven solely by the level of Company
profits. Executives are rewarded for
managing their business according
to pre-approved objectives, plans and
budgets, and sometimes budgeted
earnings are lower than previous years
due to the cyclical nature of our markets.
Share Price
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During 2007/08, the Board of Directors
spent time meeting with Boral’s
customers, shareholders, market
analysts, managers and employees.
We also spent time visiting Boral’s US
brick and roof tile operations and Boral’s
construction materials and plasterboard
operations in Brisbane.
Whilst conditions remain challenging
in some of Boral’s key markets, the
Directors believe that the company
is well positioned to deliver long-term
shareholder value through the economic
cycles. We look forward to a recovery in
Boral’s key markets which will strengthen
Boral’s ability to deliver improved returns
for shareholders.
Ken Moss
Chairman
Boral
ASX 100
ASX 100
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Boral Limited Annual Review 2008
8
8
Managing Director’s review
Heading
It’s not business as usual at Boral
I am in my ninth year as Boral’s cEO and
Managing Director and my 14th year with
the company. I have seen Boral perform
in good times and in challenging times.
In many respects, managing through the
challenging times is business as usual
for a company like Boral that operates in
cyclical markets, but 2007/08 was not
business as usual.
Several extraordinary external factors
coincided to create a particularly
challenging business environment.
Managing through a “generational”
downturn in US housing activity
The dramatic decline in US housing
activity is a generational downturn. With
dwelling starts some 45% below its
peak in 2006 and likely to fall to around
half of sustainable underlying demand in
2008/09, the USA has not experienced
such a severe decline in housing activity
for at least 25 years. This is not business
as usual.
In 2007/08, total US housing starts were
down 27% to 1.13 million compared to
1.55 million starts in the prior year and
single family housing starts were down
by a more significant 35%.
Boral’s USA earnings before interest and
tax (EBIT) decreased from a A$95 million
profit to a A$27 million loss as a result of
the dramatic deterioration in the housing
market. Significantly lower volumes,
increased raw material costs and one-
off costs (US$5 million associated with
a specialty brick plant write-down and
US$4 million of costs associated with
programs to reconfigure our brick and
roof tile plants) contributed to the severe
fall in US earnings.
A program of extensive plant slowdowns
and mothballing is in place to match
production with sales demand to avoid
a build up of inventory. Going into the
2008/09 financial year, plant utilisation
in concrete roof tiles remains less than
30%, with an average of 27% in 2007/08
compared to 48% in the prior year and
around 75% in 2005/06. Brick capacity
utilisation is around 40%, down from an
average of 56% in 2007/08 and 79% in
the previous year. During 2008/09 it is
Boral Limited Annual Review 2008
Boral Limited Annual Review 2008
planned that 10 of our 24 brick kilns in
the USA will be mothballed and will not
recommence until the market picks up.
Only two kilns are expected to operate at
capacity and the remaining 12 kilns will
be slowed or temporarily closed.
In addition to the plant network
optimisation program, we have been
implementing a comprehensive cost
reduction program. The benefits from
these step change programs when fully
implemented will be US$30 million in
the brick business and US$25 million
in the Monierlifetile concrete roof tile
joint venture, with Boral’s 50% share of
Monierlifetile benefits being
US$12.5 million. These programs are
expected to deliver an incremental
benefit for Boral of US$31.5 million in
2008/09. We are also initiating step
changes in our US concrete and quarry
businesses, which will bring further
benefits in 2008/09 and 2009/10.
Despite the short-term imperative to
streamline the business to reduce
costs and minimise the impacts of the
downturn, we continue to manage the
business for the longer term. We have
confidence in US markets and we believe
that the underlying level of demand over
the next 10 years is around 1.8 million
starts per annum.
During the year, we commissioned a
new US$55 million brick plant in Terre
Haute, Indiana, and a new US$30 million
clay tile plant in Ione, california. These
new plants position Boral well when the
market recovers. In the meantime, we
will operate these low cost plants at high
utilisation rates allowing older high cost
capacity to be mothballed.
The protracted Australian housing
downturn continues to impact,
especially in New South Wales
Australian housing approvals of around
155,000 starts per annum are 15%
to 20% below underlying demand.
The New South Wales market is 40%
below underlying demand. New South
Wales is Boral’s largest state market,
and represents around 40% of our
Australian revenues. New South Wales is
experiencing housing activity at 40 year
low levels. This is not business as usual
and is having a considerable impact on
Boral’s earnings.
Whilst activity in victoria, Queensland
and South Australia increased during
the year, activity in all Australian states
is below underlying demand. Further
declines in New South Wales in 2007/08
together with continued weakening
in the Western Australian detached
housing market impacted Boral’s building
products and construction materials
businesses.
We have been responding to the
challenges of the protracted downturn
through disciplined price management
and a relentless focus on cost reduction
programs. pleasingly, despite volume
pressures, EBIT from Building products
was up 15% to $114 million in 2007/08.
A focus on matching production with
sales demand continues. During the year,
East coast brick plant utilisation stayed
at around 75%. Since year end, we have
closed our Grafton parquetry plant and
suspended production at our Walcha
timber mill as a result of the continued
New South Wales downturn combined
with increasing input costs.
Growth investments have been directed
to higher growth states including
Boral’s new low-cost, state-of-the-art
plasterboard plant on the port of Brisbane
at pinkenba, which was commissioned
during the year. The new plant involved a
net investment of around $119 million and
will supply a growing Queensland market
and support broader supply constraints.
Our perform & Grow strategy is
allowing Boral to manage well through
the downturn and has positioned the
Company to deliver considerable benefits
when housing markets recover in New
South Wales, and in the USA.
Record levels of demand for concrete
in Australia
Whilst concrete volumes in New South
Wales are below where they were 10
years ago, concrete demand nationally
has increased by around 40% over the
same period, with volumes running at
record levels in 2007/08.
“ The dramatic decline in US housing activity is a
‘generational’ downturn. Some 45% below its peak
in 2006, the USA has not experienced such a severe
decline in housing activity for at least 25 years. This is
not business as usual.”
rod pearse, cEO AND MANAGING DIrEcTOr
9
9
Solid levels of infrastructure and non-
dwelling activity drove industry concrete
volumes up 7%, and underpinned a 10%
lift in Boral’s construction Materials EBIT
to $351 million.
Since the demerger of the Company in
January 2000, around 45% of Boral’s
total growth spend of around $2.3 billion
has gone into construction materials
businesses in Australia to strengthen
our leading positions and meet growing
demand. Despite this level of investment,
we have been capacity constrained in
some markets including cement and
quarry capacity in Queensland and quarry
capacity in Western Australia. We
are continuing to invest further in
these businesses, including an
$85 million investment in Boral’s 50%
owned Sunstate cement joint venture,
to increase clinker storage and cement
grinding capacity by 50% to 1.5 million
tonnes per annum.
Mixed conditions across Asia
Whilst construction materials demand
has been strong in Australia, in Asia
we have seen very challenging trading
conditions for our concrete and quarry
businesses in Indonesia and Thailand.
political uncertainty in Thailand has
constrained investment in major project
work and an oversupply of cement
capacity has led to substantial concrete
margin erosion. Significant input cost
increases and a lack of pricing power
have resulted in a significant price/cost
squeeze. In Indonesia, where Boral has
operated for more than 30 years, we
are seeing some improvements but in
Thailand we expect difficult conditions
to continue for some time and we have
therefore written off the $31.9 million of
goodwill which arose on acquisition of
the business in July 2004. Our focus is
on delivering improved results through
targeted volume growth, cost disciplines
and, where possible, price increases.
We continue to explore opportunities
to build an integrated cementitious
position in Asia.
conditions for our 50%-owned
plasterboard joint venture business,
lBGA, are far more favourable. A 29%
increase in results from lBGA (before
Australian dollars exchange rate impacts)
were better than expected, but with
declining results from construction
materials offsetting some of the gains,
overall, Boral’s earnings from Asia
decreased by A$5 million to
A$7 million in 2007/08.
In lBGA, price increases and a cost
reduction program, Excellence 2008,
have offset significant input cost
increases and have enhanced margins.
We continue to strengthen lBGA’s
leading plasterboard position in Asia
through value-adding ongoing growth
initiatives. A total of US$70 million was
invested into new plants in Dangjin
(korea), chengdu (china) and rajasthan
(India) with commissioning of these
plants completed in 2007/08. In August
2008, lBGA announced a further US$48
million investment in Baoshan (China).
lBGA is positioned well to take advantage
of solid growth in the region of more than
10% per annum in most markets.
Significant energy, fuel and other
cost increases
Across our entire portfolio of businesses
in Asia, in the USA and in Australia, we
have been feeling the impacts of higher
input costs including record high energy
and fuel prices. Oil prices are highly
volatile, so the recent partial correction
in prices may or may not indicate a
sustained downward trend. We are
assuming energy and fuel prices will
stay at high levels and we are focused
on recovering those costs through price
increases and levies.
During the year, our cost base increased
by around A$284 million including higher
fuel and energy costs, raw materials and
labour costs. This increase represents
an average 6.5% increase on our
compressible costs, which is higher than
any year since demerger.
We are strongly focused on recovering
extraordinary cost increases through
price increases in Australia. Thus we
have announced a second round of
price increases for concrete of $12.50
per cubic metre, for quarry products of
$1 to $3 per tonne, and for cement of
$15 per tonne, which were effective
August-September 2008. We have also
announced price increases in Australia
for bricks, roof tiles, plasterboard and
timber products to build on 2007/08 price
gains. Additionally, fuel levies or energy
surcharges have been announced for
bricks, roof tiles and masonry products in
Australia and in the USA.
Cost savings from Boral’s ongoing
performance Enhancement programs
(pEp) totalled $151 million or 3.4% of
compressible costs during the period.
Increased focus on reducing fuel and
energy costs is also continuing. In the
USA, a comprehensive alternative fuels
strategy is underway to reduce reliance
on fossil fuels and importantly to reduce
costs. Boral’s new Terre Haute brick plant
is operating on around 80% landfill gas.
Overall, 30% of our energy consumption
in the US brick business is targeted to be
sourced from alternative fuels.
Global credit crisis
A global credit tightening also added to
the extraordinary economic headwinds
experienced in 2007/08. Diminished
liquidity and higher borrowing costs
flowed through to corporate Australia.
We have focused on improving cash
management, with cash flow from
operations up by $100 million to
$582 million in 2007/08. Stay-in-business
capital expenditure was maintained at
70% of depreciation.
In April 2008, we completed the issuance
of US$382 million of 10 and 12 year
unsecured notes in the US private
placement market. Following year end,
in August 2008, we replaced a
US$600 million note issuance facility
expiring in August 2009 with a
US$700 million facility expiring in August
2011. These moves have lengthened
Boral’s debt maturity and increased our
Boral Limited Annual Review 2008
Boral Limited Annual Review 2008
10
Managing Director’s review continued
committed facilities to ensure adequate
liquidity for current activities and potential
market opportunities.
Because of Boral’s strong cash flows and
balance sheet, we were well positioned
to undertake value-adding capital
management initiatives during the year. In
April 2008, we completed an off-market
share buy-back of $114 million, or 3.3%
of issued shares, at $5.65 per share.
Boral’s balance sheet remains robust,
with gearing (debt/equity) of 52% staying
within our target range of 40% to 70%.
Introduction of an Australian
emissions trading scheme
In July 2008, the Australian Government
issued a Green paper indicating its
preferred options for an emissions trading
scheme (ETS), which it has named a
carbon pollution reduction Scheme.
The introduction of an ETS is not
business as usual.
We support the introduction of an ETS
to reduce greenhouse gas emissions.
We are however concerned about
the potential unintended economic
consequences of a poorly designed
scheme, especially on emissions-
intensive, trade-exposed (EITE) industries
such as the cement industry. It is critical
that Australia does not adopt an ETS and
an emissions target which will undermine
our competitiveness compared to trading
partners who have not taken similar
initiatives which will serve to drive
investment and emissions offshore.
There are many views on how a scheme
could be designed to avoid this. The
Business Council of Australia in its paper
Modelling success: Designing an ETs
that Works, has proposed an option for
addressing EITE industries. We support
the proposal for the provision of full
compensation to EITE industries for
emissions above a threshold of emission
costs of 3%-5% of value-add (profits
plus labour). This option still sees EITE
industries wearing a significant share
of the cost and abatement burden but
it provides greater investment certainty
and gives industry a better chance to
continue to effectively compete with
imports and to invest for the future.
Boral Limited Annual Review 2008
Outlook for 2008/09
Many of the extraordinary challenges that
we faced in 2007/08 will stay with us in
2008/09.
We expect Australian dwelling starts to
be broadly in line with last year at around
155,000 starts but a further decline in
housing affordability in 2008 and high
interest rates make this quite uncertain.
If housing activity holds up, Building
products profits will remain steady, with
effective price and cost management
offsetting the impact of further softening
in Western Australia and the entry of
a new competitor into the Western
Australian clay brick market.
We anticipate increased non-dwelling
and infrastructure activity outside New
South Wales which will favourably impact
Construction Materials businesses in
Australia. The already announced price
increases should offset cost increases.
We expect earnings from Quarry End
Use activities to remain steady at around
$50 million, which will again be weighted
heavily to the second half of the year.
Construction Materials earnings from
Australia should be stronger in 2008/09.
In the USA unsold new and existing
house inventories remain at high levels,
foreclosure rates have increased and
there is uncertainty in credit markets.
Market forecasters currently expect US
housing starts to be around 900,000
in 2008/09, compared to annualised
starts of around 1.0 million in the June
half of 2008. Whilst lower volumes
will adversely impact brick and roof tile
sales volumes and earnings, increased
benefits from significant cost reduction
and network efficiency programs will
be delivered. US construction materials
markets are expected to be weaker.
Overall, US earnings are expected to be
lower in 2008/09.
We expect continued competitive market
conditions and input cost pressures
in Asia, particularly in construction
materials.
We have targeted to deliver operating
cost improvements from performance
enhancement programs of at least 3%
of compressible costs, and benefits from
growth programs will again enhance
earnings.
It is too early to comment further on
2008/09 expected financial outcomes.
We will provide an update on trading
conditions at the Annual General Meeting
on 24 October 2008.
Managing the business in
a sustainable way
We remain focused on delivering
value through the economic cycles.
Our overarching objective of delivering
superior returns in a sustainable way
remains unchanged.
We have maintained momentum around
our sustainability agenda despite the
external challenges faced in 2007/08.
Our current sustainability priorities, goals
and performance are detailed in Boral’s
Sustainability Report, which forms part of
this Annual Review.
Safety remains the highest of priorities
across Boral. In 2007/08, Boral’s safety
performance as measured by lost
time injury frequency rate (lTIFr) and
percent hours lost, continued to improve.
lTIFr of 2.5 for the year was an 11%
improvement on the prior year, and
percent hours lost also reduced by 11%
to 0.08. This improved performance was
pleasing. It was, however, overshadowed
by the death of an employee in South
Australia in a heavy vehicle accident in
December 2007. We deeply regret this
tragic accident and remain focused on
eliminating all accidents, particularly
serious workplace accidents that
could risk the lives of employees and
contractors.
I commend the focus and hard work
of Boral’s management and employees,
particularly their commitment and
persistence in challenging times.
Rod Pearse
cEO and Managing Director
“ Despite the short-term imperative to streamline the
business to reduce costs and minimise the impacts
of the downturn, we continue to manage the
business for the longer term.”
rod pearse, cEO AND MANAGING DIrEcTOr
11
Growth project
Current status
New 40 million m2 plasterboard plant in
Queensland for net investment of ~$119 million
plant operational by end of May 2008. Early commissioning difficulties close
to resolution. Completed.
$21 million total investment in new asphalt plants
in Queensland, victoria and Western Australia
construction of new asphalt plants at West Burleigh (August 2007) and
Ipswich (September 2007) in Queensland, Geelong in victoria (July 2007)
and Welshpool in Western Australia (October 2007). Completed.
US$84 million acquisition of assets of Schwarz
readymix concrete & sand business and
quarry assets of Davis Arbuckle Materials
in Oklahoma City
positions Boral as the second largest concrete producer in Oklahoma city
and includes a limestone quarry at Davis, Oklahoma. combined operations
have annual production of ~750,000 cubic yards of ready-mixed concrete
and 1.6 million tons of sand and aggregates. Completed.
US$10 million acquisition of sand and gravel
reserves in Denver, Colorado
reserves well located to supply the Denver market as existing reserves
come to the end of their useful lives. Completed.
New US$55 million, 120 million SBE US brick
plant at Terre Haute, Indiana
New US$30 million, 130k square p.a., clay roof
tile plant at Ione, California
commissioning completed June 2008 quarter. This low cost plant will
operate at high utilisation rates, reaching full production in FY09. Final spend
was around 5% above original plan. Completed.
commissioning completed June 2008 quarter. The plant will operate at
high capacity utilisation in FY09. Final capital costs were slightly ahead of
announced US$27.5 million expenditure. Completed.
US$42 million total upgrade of lBGA’s Dangjin
plasterboard plant, near Seoul, to double capacity
to 75 million m²
commissioning completed in December 2007 ahead of plan with investment
cost below budget. Benefits will flow as the korean residential market lifts.
Completed.
US$28 million (total) in new LBGA plasterboard
plants in rajasthan, India and Chengdu, China
$85 million (total) to upgrade cement capacity of
Sunstate Cement in Queensland
$44 million investment in new masonry plant at
Middle Swan in Western Australia
New plants completed at rajasthan, India (8 million m²) in April 2008 and
in chengdu, china (10 million m²) in June 2008, both ahead of plan with
investment costs below budget. Completed.
Expansion of clinker storage and grinding from 1.0 million to 1.5 million
tonnes p.a. to meet growing Queensland demand. completion of clinker
storage due in September 2008 quarter and increased grinding capacity
by June 2009 quarter.
New plant will replace high cost, ageing cannington and Jandakot plants
and lift Boral’s Western Australia masonry capacity from 90,000 to 170,000
tonnes p.a. cannington and Jandakot sites will be liberated for sale. Benefits
to come shortly after commissioning in the September 2009 quarter.
Strengthening of concrete network in
New South Wales ($14 million) and Queensland
($5 million)
rebuilding Artarmon (New South Wales) concrete plant expected to be
complete by December 2009. replacement of Gladstone (Queensland) plant
with new, higher capacity plant expected to be complete around June 2009.
US$48 million (total) in new LBGA plasterboard
plant (and land) at Baoshan, Shanghai, China
(34 million m²)
New Baoshan plant expected to be in operation in December 2009 quarter,
with 34 million m2 p.a. capacity and flexibility to increase capacity in future.
Boral Limited Annual Review 2008
Recent and current major growth activities 12
SUMMArY OF FINANcIAl rESUlTS
Financial results
A$ million unless stated
YEAr ENDED 30 JUNE
Revenue
EBITDA1
EBIT1
Net interest
profit before tax1
Tax1
Minority interest
Underlying profit after tax1
Net significant items
Profit after tax
Cash flow from operating activities
Gross assets
Funds employed
liabilities
Net debt
Growth and acquisition capital expenditure
Stay-in-business capital expenditure
Depreciation
Employees
Sales per employee, $ million
Net asset backing, $ per share
Net tangible asset backing, $ per share
EBITDA margin on sales1, %
EBIT margin on sales1, %
EBIT return on funds employed1, %
Return on equity1, %
Gearing (net debt/equity), %
Interest cover1, times
Underlying earnings per share1, ¢
Dividend per share, ¢
Safety:
lost time injury frequency rate
recordable injury frequency rate
Australian dwellings
Australian non-dwellings
Australian engineering
and construction
USA dwellings
USA non-dwellings
USA engineering
and construction
Asia
Other
Construction Materials,
Australia
Building Products,
Australia
USA
Asia
2008
5,199
688
448
112
336
90
1 0
247
4 0
243
582
5,895
4,425
2,985
1,515
327
169
240
15,928
0.326
4.96
4.41
13.2
8.6
10.1
8.5
52
4.0
41.4
34.0
Share of revenue2 by market
2007 % cHANGE
4,909
762
531
111
420
122
298
6
(10)
(16)
1
(20)
(26)
(17)
298
(19)
EBITDA by segment
482
5,817
4,470
2,829
1,482
226
192
231
16,194
0.303
4.98
4.41
15.5
10.8
11.9
10.0
50
4.8
50
34.0
21
1
(1)
6
2
45
(12)
4
(2)
8
(15)
(20)
(15)
(15)
(17)
2.5
26.7
2.8
27.8
Sales revenue $m
EBITDA1 $m
EBIT1 $m
Profit after tax1 $m
Earnings per share1 c
9
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Boral Limited Annual Review 2008
EBITDA variance analysis ($ million)
762
13
13
Company Announcements
19 August 2008
Boral announces an after tax profit of $243 million for the year
ended 30 June 2008, a 19% or $55 million decrease on the pAT
for the year ended 30 June 2007.
688
15 August 2008
Boral announces that its 50/50 plasterboard joint venture with
lafarge, lafarge Boral Gypsum Asia (lBGA), intends to invest
a total of US$48 million to build a new plasterboard plant in
Baoshan, China.
8 May 2008
Boral announces that due to the deterioration in market
conditions in the US and poor weather in the March quarter, it is
revising its guidance for its FY2008 result. Boral expects FY2008
pAT to be around the bottom end of analysts forecast range of
$234 million to $256 million.
16 April 2008
Boral announces the successful completion of an issue of
US$382 million of Senior Unsecured Notes to institutions in the
North American Traditional private placement market. The Notes
are structured in two tranches comprising ten year and twelve
year bullet maturities with fixed coupon rates of 7.12% pa and
7.22%, respectively.
7 April 2008
Boral announces the successful completion of its off-market
buy-back tender. Boral will purchase 20.0 million, or 3.3%, of
its fully paid ordinary shares. The Buy-Back price has been set
at $5.65 per share, which represents a discount of 13% to the
Market price of $6.4922.
13 February 2008
Boral announces that it intends to buy back approximately
$100 million of its ordinary shares, through an off-market
buy-back tender.
Boral announces a profit after tax (pAT) of $132 million for the half
year ended 31 December 2007, a 10% or $15 million decrease
on the pAT for the half year ended 31 December 2006.
Boral announces that it intends to build a new $33 million
concrete masonry plant at its Middle Swan (Midland Brick) site
in Western Australia. The new masonry plant will replace Boral’s
existing 40-year old, high cost, low capacity cannington plant
more than doubling that sites’ current output. [A subsequent
announcement on 19 August 2008 as part of Boral’s full year
results announcement upgraded this project to a $44 million
masonry plant, which will also allow the older, high cost capacity
at Jandakot to close.]
21 December 2007
Boral announces that it has entered transactions with DB rrEEF
for a total price of $157.7 million for the sale of a
47.5 hectare parcel of land which forms approximately 66%
or Boral’s Greystanes Estate – Southern Employment lands.
10 September 2007
Boral chairman ken Moss announces that Mark rayner will retire
as a non-executive Director of Boral limited.
Boral Chairman Ken Moss announced the appointment of
Dr Bob Every as a non-executive Director of Boral limited.
1 Excluding goodwill and tax provision adjustments.
FY05 results onwards restated to reflect transition to A-IFrS
accounting standards.
2 Includes Boral’s share of revenues from Asia plasterboard and
Monierlifetile joint ventures.
Boral Limited Annual Review 2008
Boral Limited Annual Review 2008
7
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Volume
Substantial brick and roof tile housing related volume declines
in the US offset overall volume growth in Australian businesses,
particularly in quarry products. High levels of non-residential and
infrastructure construction activity in all Australian states except
New South Wales benefited volumes.
Price
pricing outcomes in Australia were favourable despite housing
activity remaining at low levels. prices lifted by 3%-7% in cement,
concrete and quarry products and 6% in timber, whilst bricks,
roofing, masonry and plasterboard prices were up 1%-3%.
Despite the severe housing downturn in the US, prices were only
down in bricks and concrete roof tiles by 2% and 5% respectively,
whilst clay roof tile prices were up 4%.
Costs and PEP
cost savings of $151 million were delivered from performance
Enhancement programs (pEp), equal to 3.4% of compressible
costs, however, costs increased by around 6.5%, or $284 million,
due in part to higher input costs in Australian Construction
Materials, including raw materials, fuel, equipment and services
that are competing with the booming resources sector. low
volume related production network inefficiencies in bricks in the
US also impacted the result.
Growth and QEU
Benefits from growth initiatives contributed $20 million, with the
new Oklahoma construction materials business, kiln 11 at Midland
Brick and Union city brick plant being significant contributors.
Boral’s growth portfolio will be increasingly value-adding as
markets recover and grow. Quarry End Use earnings were
$2 million lower than the prior year.
Plant one-offs
plant slowdown and shutdown costs were around $18 million,
mostly due to extended temporary shutdowns in bricks particularly
in the US, in response to lower sales volumes with the severe
housing downturn.
14
SUMMArY OF rEpOrTING GrOUpS
Construction Materials, Australia
Building products, Australia
Share of external revenue
Share of external revenue
19%
6%
2%
22%
13%
Concrete
* Cement division
28%
38%
Quarries
Asphalt
Other
QEU
includes Blue Circle
(excl. internal sales
to Boral businesses),
De Martin & Gasparini
and Formwork &
Scaffolding.
Cement division*
20%
12%
22%
9%
9%
Bricks
Roofing
Masonry
Windows
Timber
Australian Plasterboard
Revenue $m
EBITDA1 $m
EBITDA/Revenue %
Revenue $m
EBITDA1 $m
EBITDA/Revenue %
0
6
9
,
2
9
4
5
,
2
0
1
4
,
2
4
6
1
,
2
9
8
4
4
5
4
2
1
4
6
1
4
0
1
4
6
.
9
1
2
.
9
1
2
.
8
1
8
.
7
1
0
.
7
1
5
.
6
1
4
.
4
1
7
.
3
1
5
3
3
7
.
8
7
3
2
5
.
7
8
0
2
7
5
3
,
1
5
7
2
,
1
7
1
2
,
1
3
1
2
,
1
7
8
1
,
1
6
5
1
,
1
9
9
9
5
5
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2
0
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1
4
6
1
8
6
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.
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6
1
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4
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4
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1
,
7
.
8
5
.
7
0
4
6
,
1
3
2
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,
1
1
0
Y
F
2
0
Y
F
3
0
Y
F
4
0
Y
F
5
0
Y
F
6
0
Y
F
7
0
Y
F
8
0
Y
F
1
0
Y
F
2
0
Y
F
3
0
Y
F
4
0
Y
F
5
0
Y
F
6
0
Y
F
7
0
Y
F
8
0
Y
F
1
0
Y
F
2
0
Y
F
3
0
Y
F
4
0
Y
F
5
0
Y
F
6
0
Y
F
7
0
Y
F
8
0
Y
F
1
0
Y
F
2
0
Y
F
3
0
Y
F
4
0
Y
F
5
0
Y
F
6
0
Y
F
7
0
Y
F
8
0
Y
F
1
0
Y
F
2
0
Y
F
3
0
Y
F
4
0
Y
F
5
0
Y
F
6
0
Y
F
7
0
Y
F
8
0
Y
F
1
0
Y
F
2
0
Y
F
3
0
Y
F
4
0
Y
F
5
0
Y
F
6
0
Y
F
7
0
Y
F
8
0
Y
F
year ended 30 June
2008
2007 % change
year ended 30 June
2008
2007 % change
A$ million unless stated
Sales revenue
EBITDA
EBIT
capital expenditure3
Funds employed3
EBITDA return on sales, %
EBIT return on sales, %
EBIT return on funds employed, %
Employees, number
Revenue per employee
2,960
489
351
180
2,310
16.5
11.9
15.2
5,798
0.511
2,549
454
318
169
2,271
17.8
12.5
14.0
5,838
0.437
A$ million unless stated
Sales revenue
EBITDA
EBIT
capital expenditure3
Funds employed3
EBITDA return on sales, %
EBIT return on sales, %
EBIT return on funds employed, %
Employees, number
Revenue per employee
1,357
168
114
125
1,178
12.4
8.4
9.7
4,080
0.333
16
8
10
6
2
(1)
17
1,275
151
99
127
1,114
11.8
7.8
8.9
4,107
0.311
6
11
15
(1)
6
(1)
7
Performance
•
Whilst New South Wales housing activity remains very weak,
a lift in activity in Queensland and South Australia offset
weaker housing starts in Western Australia.
Stronger pricing outcomes were reported across all building
products and $29 million of pEp cost reduction were
delivered.
Earnings increased in most businesses except bricks due
to lower volumes in Western Australia and temporary plant
closures.
•
•
Performance
•
Stronger asphalt, quarries, cement and lime volumes were
underpinned by high levels of non-dwellings and infrastructure
major project activity in all states except New South Wales.
Improvements in concrete, quarries and cement pricing
together with $88 million of pEp cost reductions contributed
to the result.
EBITDA margin of 16.5% was down due to higher input costs.
Quarry End Use (QEU) contributed $54 million of EBIT ($56
million in prior year).
•
•
•
Boral Limited Annual Review 2008
15
USA
Asia
Includes Boral’s Asian plasterboard joint venture with
lafarge2 and Boral’s Indonesian and Thailand construction
materials businesses.
Share of external revenue
19%
Bricks
* Monierlifetile and
51%
Clay roof tiles*
Concrete roof tiles*
Fly ash
Construction materials
Trinidad Jvs are equity
accounted – Boral’s share
of revenue does not
appear in consolidated
accounts but is included
in the revenue pie chart.
16%
10%
4%
Revenue $m
EBITDA1 $m
EBITDA/Revenue %
Revenue $m
EBIT1 $m
EBIT/Revenue %
7
5
9
3
8
8
3
9
7
6
5
7
1
6
7
5
5
7
0
1
8
1
7
6
5
5
1
7
5
1
1
5
1
4
4
1
9
1
2
7
7
1
9
2
1
8
.
2
2
8
.
1
2
6
.
0
6 2
.
9
1
0
.
0
2
0
.
9
1
6
.
4
1
1
1
4
6
9
3
4
6
3
9
2
4
2
0
2
3
2
2
2
0
0
3
1
4
2
7
2
2
0
1
2
1
1
7
.
1
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9
4
9
.
1
1
4
.
0
1
4
.
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2
1
7
0
.
4
4
.
7
2
.
6
1
.
3
6
.
1
1
0
Y
F
2
0
Y
F
3
0
Y
F
4
0
Y
F
5
0
Y
F
6
0
Y
F
7
0
Y
F
8
0
Y
F
1
0
Y
F
2
0
Y
F
3
0
Y
F
4
0
Y
F
5
0
Y
F
6
0
Y
F
7
0
Y
F
8
0
Y
F
1
0
Y
F
2
0
Y
F
3
0
Y
F
4
0
Y
F
5
0
Y
F
6
0
Y
F
7
0
Y
F
8
0
Y
F
1
0
Y
F
2
0
Y
F
3
0
Y
F
4
0
Y
F
5
0
Y
F
6
0
Y
F
7
0
Y
F
8
0
Y
F
1
0
Y
F
2
0
Y
F
3
0
Y
F
4
0
Y
F
5
0
Y
F
6
0
Y
F
7
0
Y
F
8
0
Y
F
1
0
Y
F
2
0
Y
F
3
0
Y
F
4
0
Y
F
5
0
Y
F
6
0
Y
F
7
0
Y
F
8
0
Y
F
2008
2007 % change
year ended 30 June
2008
2007 % change
year ended 30 June
us$ million
Sales revenue
EBITDA
EBIT
A$ million
Sales revenue
EBITDA
EBIT
capital expenditure3
Funds employed3
EBITDA return on sales, %
EBIT return on sales, %
EBIT return on funds employed, %
Employees, number
Revenue per employee
607
10
(25)
671
11
(27)
180
789
1.7
(4.0)
(3.4)
2,208
0.304
699
102
75
883
129
95
100
813
14.6
10.7
11.6
2,503
0.353
(13)
(90)
(133)
(24)
(91)
(129)
(81)
(3)
(12)
(14)
Performance
•
US housing starts were down 27% to 1.13m compared to
1.55 million starts in FY07 and over 2.0 million starts in FY06.
•
lower volumes, increased raw material costs, and one-off
costs to reconfigure production networks contributed to the
severe fall in earnings.
•
prices held despite volume pressures.
•
US$24 million of pEp and other cost savings were
delivered. Significant cost reduction initiatives continue
to be implemented.
•
Oklahoma construction materials acquisition favourably
impacted the result.
A$ million unless stated
Sales revenue
EBITDA4
EBIT4
Funds employed3
return on funds employed, %
191
16
7
285
2.3
5
(22)
(45)
183
21
12
376
3.2
Performance
•
The Boral/lafarge Asian plasterboard Jv, lBGA, contributed
an equity accounted profit after tax of $18.1 million, which
was 12% above the prior year.
Before exchange rate impact the lBGA result was up 29%
year on year in US dollars, reflecting continued improvement
in market conditions in a number of key plasterboard markets
together with price lifts, cost reductions and growth benefits.
construction Materials results were significantly down. In
Indonesia, volumes were up but prices were flat and costs
increased significantly. In Thailand, volumes were down by
1% and prices were down at the same time as cement and
diesel costs continued to increase.
With conditions remaining difficult in Thailand the
$31.9 million of goodwill which arose on acquisition of the
business in July 2004 was written off during the year.
•
•
•
1 EBITDA and EBIT results from FY05 onwards have been adjusted for A-IFrS.
2 Boral’s profits from lBGA are equity accounted and are after financing and tax. Boral’s
share of revenue from the lBGA joint venture do not appear in consolidated accounts,
however, Boral’s share of lBGA revenues is included in the revenue bar chart for Asia
from FY01 onwards.
3 capital expenditure and funds employed include acquisitions.
4 The Asia result excludes the $31.9 million write-off of Thailand goodwill in FY08.
Boral Limited Annual Review 2008
16
rEvIEW OF OpErATING DIvISIONS
Australian Construction Materials
In 2007/08 sales from Australian
Construction Materials were around
16% higher than the prior year.
Performance was underpinned by
strong trading conditions including
strong non-dwelling and infrastructure
activity, particularly in the resource rich
states of Queensland, South Australia
and Western Australia, and from our
participation in Melbourne’s EastLink
project. Robust market conditions in
these states, together with effective
price management and disciplined
cost reduction programs, more than
offset weaker market conditions in
New South Wales.
Boral’s concrete volumes were 3% higher
than last year. This was due largely to
our participation in infrastructure activity
and was despite the ongoing difficult
trading conditions in New South Wales
where detached dwelling construction
activity remains at 40 year low levels.
Strong pricing outcomes were achieved
during the year, largely off-setting higher
production and cartage costs.
Asphalt performed very strongly
during the year with higher volumes
underpinning a 26% lift in revenue.
The improved result was driven by high
levels of infrastructure activity such as
The Australian Construction Materials
(ACM) division employs around 4,600
employees and 1,600 contractors in
quarry, concrete, asphalt, transport and
land development activities throughout
Australia. With around 400 operating
sites, ACM has a regional focus to serve
Boral’s local markets.
Quarries
Boral has leading quarry resource
positions close to market and is
Australia’s leading quarry operator with
around 100 quarries, sand pits and gravel
operations producing products such
as concrete aggregates, crushed rock,
asphalt and sealing aggregates, road
base materials, sands and gravels.
Boral Limited Annual Review 2008
the Eastlink project in Melbourne and
highway upgrades in Brisbane, together
with a favourable product mix. Margins
remained at historically high levels
despite bitumen cost escalation.
Quarry volumes were 10% higher than
last year due to concrete and asphalt
pull-through and participation in a number
of infrastructure projects. capacity
constraints affected our businesses
in Queensland, victoria and Western
Australia, leading to increased cost
pressures from higher incremental costs
from mobile plant and equipment hire,
additional labour and campaign crushing.
High fuel costs also impacted costs.
These cost pressures were largely offset
by price increases and cost reduction
initiatives.
Boral’s Quarry End Use (QEU) business
contributed $54 million of EBIT. This year,
QEU earnings came from the George’s
Fair (Moorebank), Nelson’s ridge
(Greystanes) and Southern Employment
land (Greystanes) developments, the
sale of land at a number of locations
including Gillman (South Australia) and
from the Deer park Western landfill
operation.
Concrete
The network of around 240 premix
concrete plants produces a wide range
of mixes in metropolitan and country
areas. Boral is the largest national
precast concrete provider through its
investments in GoCrete in Perth and
Girotto Precast operating in key markets
on the East Coast.
Asphalt
Boral is a national supplier of asphalt
with around 50 plants producing asphalt
and other materials for the surfacing and
maintenance of road networks.
Transport
The company-owned fleet totals around
400 vehicles providing bulk transport and
logistics solutions to the construction
materials businesses, other Boral
divisions and to selected external freight
Outlook
We anticipate that high levels of non-
dwelling and infrastructure activity will
continue to favourably impact ACM
during 2008/09. concrete and quarry
price increases that were announced
effective 1 April 2008 will continue to
flow through in 2008/09, augmented
by additional increases of $12.50 per
cubic metre for concrete and $1-$3 per
tonne for quarry products, which were
announced effective 1 August 2008.
QEU forecast earnings of around
$50 million will again be weighted
heavily to the second half of 2008/09.
markets where it supports our internal
business. Boral Transport manages
approximately a further 300 contracted
vehicles and drivers
Quarry End Use
QEU focuses on realising appropriate
end uses for quarry properties and other
Boral land assets that are nearing the end
of their economic life. Current major QEU
activities include development of the
Greystanes Estate and the Moorebank
brick plant redevelopment in Sydney
and a 40% share in the Penrith Lakes
Development Scheme.
“ Across our construction materials businesses we have been facing
acute cost pressures that threaten to erode margins and profitability.
Strong commodity prices (particularly steel and diesel) have hurt us.
We compete with resources companies for people and other inputs
and this has also added to the cost pressures. We have had to work
very hard to recover the extraordinary cost increases and we have
been doing that through focused cost reduction programs and by
announcing out of the ordinary price increases to the market.”
John Douglas, EXEcUTIvE GENErAl MANAGEr
17
large scale infrastructure projects
have been a key source of revenue
for ACM, with growth in this segment
forecast to continue. Major projects
for which Boral is currently supplying
include the Gateway Bridge in
Brisbane, the Deer park Bypass in
Melbourne, the Sturt Highway in
South Australia, the Hume Highway
upgrade between NSW and victoria,
and the F3 upgrade in NSW. AcM has
significant capacity and capability to
meet the demands of such projects,
as demonstrated by our successful
participation in the Eastlink motorway
project in Melbourne.
Boral has successfully secured the leading
industry position in South East Queensland
with the largest consented reserves and
best quarry network. Work over recent
years on our quarry resource positions in
Queensland has yielded eight resource
extensions or greenfield sites in addition
to four long-term extractive leases.
In 2007, AcM obtained development
approvals to convert un-consented
resources to consented resources at
four sites.
ACM has benefited from the
mining “boom” as our large
project capabilities make us an
ideal partner in the development
of new mines. ACM is supplying
construction material for the
development of the Boddington
Gold Mine in Western Australia,
the Oxiana prominent Hill mine in
South Australia and the Cadia Mine
in New South Wales. Our mobile
and relocatable equipment, as
well as our transport capabilities,
make us a valuable partner to
the resources industry in the
development of mines and
infrastructure.
Boral’s concrete panels business is
the largest national precast concrete
provider in Australia. Girotto precast
supplies the major East coast centres
while Gocrete supplies the perth
market. An automated plant was
commissioned for our GoCrete precast
operations during the year, an example
of our commitment to employ the latest
technology to grow this business.
Boral Limited Annual Review 2008
18
rEvIEW OF OpErATING DIvISIONS
Cement
Blue Circle Cement volumes were
up 6% on last year, underpinned by a
substantial lift in Queensland and steady
but strong volumes in Victoria. In New
South Wales, core cement volumes
were up marginally but the New South
Wales business benefited from increased
wholesale and interstate sales. Average
cement prices were 3% higher than the
prior year.
lime volumes improved by 32%,
primarily driven by increased usage
intensity by the steel sector and lime
prices were 9% higher.
Blue circle’s EBITDA improved due
principally to increased volumes and
prices as well as improved kiln operating
levels. In the prior year (July 2006), there
was a trunnion failure at Berrima resulting
in a three week outage and costing
around $5 million.
Formwork & Scaffolding experienced
stronger volumes during the period,
however, the business was impacted
by pricing pressure and one-off costs
resulting from branch rationalisation
and stock write-downs. The national
branch rationalisation project, which
has reshaped the business, saw branch
numbers reduce from 28 to 17 branches
during the year. The scale efficiencies
that are expected from this program are
necessary because of lower prices driven
by low cost imports predominantly from
China. Scaffolding utilisation increased
during the period. EBITDA was lower.
De Martin & Gasparini reported higher
revenues and relatively steady margins.
EBITDA from Dowell Windows was up
on last year due to higher prices, ongoing
tight cost controls and stronger volumes.
Revenues increased with stronger
sales in South Australia and victoria in
particular.
Construction Materials results in Asia
were significantly down for the period.
Whilst concrete volumes in Indonesia
increased by 30%, including market
share recovery, prices were flat in an
environment where costs increased
significantly, particularly diesel and
cement. At the end of the year, concrete
prices in Indonesia increased significantly,
resulting in an improved level of margins
and profitability.
Thailand concrete volumes were slightly
down, with market share maintained,
however, political uncertainty continued
to impact large infrastructure projects
specifically and construction generally.
Margin squeeze was experienced as
prices reduced at the same time as
cement and diesel costs continued to
increase. In Thailand, we expect difficult
conditions to continue for some time.
During 2007/08 we wrote off the
$31.9 million of goodwill which arose on
acquisition of the business in July 2004.
Outlook
Cement demand in Australia should
remain well supported in 2008/09 by
expected continued strength in non-
dwellings and infrastructure activity
outside of New South Wales. Global
cement production costs have increased
sharply, particularly coal and other
energy costs, which has resulted in a
higher import parity price, despite the
appreciation of the Australian dollar.
This has provided headroom for an
increase in cement prices in Australia.
price increases ranging from $10 to
$15 per tonne were implemented on
1 September 2008. Trading conditions
are expected to remain challenging
in Asia.
The division operates across 142
operating sites in Australia, Indonesia
and Thailand and employs approximately
5,500 people (with around 3,500 in Asia.
Blue Circle Southern Cement (BCSC)
Blue Circle has 13 operating and four
distribution sites. Major operations are
in the Southern Highlands of NSW at
Berrima where the dry process cement
capacity is 1.4 million tonnes p.a. At
Maldon, up to 300k tonnes p.a. of off-
white and grey cement can be produced
and there is a bagging and dry mix
facility. BCSC markets fly ash acquired
from power stations in NSW and has a
50% shareholding in Fly Ash Australia. In
Victoria, at Waurn Ponds near Geelong,
the dry process kiln has a capacity of
800k tonnes p.a. BCSC also has a 50%
interest in Sunstate Cement which
operates a cement milling facility in
Brisbane.
Boral Limited Annual Review 2008
BCSC is a large producer of limestone
for both internal and external customers
from our substantial reserves at Marulan
and at Galong in NSW. Lime is produced
at Marulan and at Galong.
Boral Formwork & Scaffolding (BFS)
Boral is a leader in the hire and sale of
formwork and scaffolding, providing
engineering expertise to the construction
industry. BFS has 17 depots around
Australia with an increasing focus on new
formwork products.
De Martin & Gasparini (DMG)
DMG is a specialist concrete placing
business which has been servicing
Sydney’s construction industry for over
50 years. DMG has built its expertise in
large pours, detailed formwork design
and high strength concrete.
Dowell Windows
Boral’s window businesses operate
under various brand names including
Dowell Windows. The business operates
nationally through 14 window fabrication
businesses focusing on supplying the
residential builder market.
Indonesian Construction Materials
PT Jaya Readymix is the largest producer
of premixed concrete in Indonesia,
operating on 39 sites, predominantly
located on the main island of Java. Its
hard rock quarries produce aggregates
for the Jakarta market. The business is
expanding its concrete pipe and precast
panels business.
Boral Thailand Concrete & Quarries
This business is one of Thailand’s leading
concrete and quarry businesses and
operates around 53 concrete batch plants
and quarries throughout the country.
“ The most important challenge for us is to ensure the
long-term sustainability of the cement industry in Australia.
cement is emissions-intensive and trade-exposed, and
the introduction of an emissions trading scheme is a
significant event. A well designed scheme should preserve
Australia’s competitiveness, avoid carbon leakage and
motivate actions to further reduce emissions.”
phil Jobe, EXEcUTIvE GENErAl MANAGEr
19
Jayamix, a Boral subsidiary, the leading
premix concrete company in Indonesia,
has strongly improved health and safety
performance during 2007/08 winning
the Boral Award for Excellence in
people practices. The implementation
of Boral’s hazard identification and
safety management software system
“SiteSafe” in Asia as well as the
development and acceptance of detailed
“Traffic light” and other plant safety
performance monitoring metrics has
significantly reduced the number of lost
time injuries from 6 to just 1 in 2007/08.
The lTIFr has been reduced by 74%
and % hours lost reduced by 42% on
last year.
The $85 million (total investment)
upgrade of the cement capacity
of Boral’s joint venture Sunstate
cement business in Queensland
is underway and is expected to
continue through to June 2009.
The project will see clinker grinding
capacity lift by 50%
to 1.5 million tonnes p.a together
with additional clinker, cement
and fly ash storage capacity to
meet growth in market demand in
Queensland.
De Martin & Gasparini in conjunction
with Boral Formwork & Scaffolding
are building the new car park at the
Sydney International Airport for the
Sydney Airports corporation. This
project is an excellent example of
collaboration across the division, with
the structure of the carpark built by
De Martin & Gasparini and formwork
provided by Boral
Blue circle is working with batch
plants being used for road base
paving, providing additional onsite
cement and flyash storage to road
projects such as the coolac Bypass
project, a 16km dual carriageway
being constructed by Abigroup. Blue
circle has supplied 180k tonne of
cement and flyash providing 1,300
tonne/day during peak demand for
road projects in NSW. Work on these
projects is expected to continue
throughout 2008/09.
Boral Limited Annual Review 2008
20
rEvIEW OF OpErATING DIvISIONS
clay & concrete products
Demand for Clay & Concrete Products is
primarily driven by Australian dwelling
construction, particularly detached
housing. Again this year, market
conditions varied widely between
different states. Total Australian
dwelling approvals were up 4% on the
prior year, with detached housing starts
up 3%. However, the division’s two
largest markets were both down with
Western Australia down 13% and New
South Wales down 1% to 40 year low
levels.
Detached dwelling activity in
Queensland, victoria and South Australia
were all up, which helped to offset the
decline in Western Australia. Dwelling
starts were around 155,000 starts in
2007/08, well below underlying demand
levels of around 185,000 starts per
annum.
revenues were up 3% on the prior year,
driven by a combination of higher selling
prices but lower volumes. Due to these
lower volumes, earnings for the division
were slightly down on the prior year.
Sales volumes reflected the differing
regional market conditions, with volumes
above prior year in all states except
Western Australia. Brick volumes were
down 2%-3% nationally as declining
conditions in Western Australia offset
improvements in all other states. Roof
tile volumes were up 9% nationally
driven by increases in all states except
New South Wales. Masonry volumes
were up 1% with declines in New South
Wales and victoria offset by increases
in other states. pricing outcomes were
positive across all businesses. Average
prices improved by around 3% in Bricks,
1%-2% in roof Tiles, and by 2% in
Masonry. Market shares were broadly
stable throughout the year.
To match production levels to the weak
market conditions a series of plant
slowdowns and/or extended temporary
shutdowns continued across the East
Coast. Most clay manufacturing plants
had extended shuts and multiple concrete
products plants operated on reduced
shifts. Manufacturing performance was
favourable across the businesses when
compared to the prior year except in
Western Australia. Western Australia
was adversely impacted by market
driven lower production volumes and
unscheduled production interruptions as
a result of a clay shed fire and electricity
supply interruptions resulting from the
varanus Island gas fire. In roofing,
benefits arose from the Springvale
(victoria) and carole park (Queensland)
concrete tile plants which have both been
upgraded in recent years.
Major business improvement programs
continued to deliver in line with
Clay & Concrete Products has 43
Australian locations including 23
operating sites, and employs around
1,800 people and over 800 contractors.
The products are sold in Australia, New
Zealand and Asia.
Bricks
Boral is Australia’s second largest
producer of clay bricks and pavers. Boral
is also an exporter of clay products to
New Zealand, Japan and, increasingly,
other Asian countries.
Bricks East comprises eight brick
manufacturing sites in Victoria, New
South Wales and Queensland.
Bricks West includes Midland Brick
which is the largest clay brick
manufacturer on one site in the world.
Midland was established in 1945 and
acquired by Boral in 1990.
Roofing
As Australia’s second largest roof tile
supplier, Boral competes in both the
supply-only and supply-and-fix market
segments. We operate four concrete
roof tile plants in the cities of Brisbane,
Sydney, Melbourne and Adelaide and
one clay roof tile plant at Wyee, on the
New South Wales Central Coast.
Boral Limited Annual Review 2008
expectations in the East coast Bricks,
Roofing and Masonry businesses.
Outlook
We expect 2008/09 dwelling
commencements in Australia to be
similar to the forecast level of around
155,000 for 2007/08. Earnings are
expected to decline in 2008/09, driven
by further softening in Western Australia
residential dwelling activity and the entry
of a new competitor into the Western
Australian clay brick market. Effective
price and cost management will provide
some offset to this decline. Fuel price
levies, effective 1 October 2008, have
been announced for brick, roof tiles and
masonry products and price increases
have also been announced in bricks and
roofing which will benefit the 2008/09
result.
Masonry
Boral is the leading manufacturer of
concrete masonry products in Australia
with manufacturing sites in five states.
We are a recognised leader in the
paving, landscaping and retaining wall
segments and have an industry-leading
range of products.
“ Our businesses are fairly heavily exposed to the Australian housing
market, which is continuing to track well below underlying demand
levels. On the East coast, we have been running our plants at
sub-optimal levels for the past three or four years, in an effort to
match production to sales volumes. We are using performance
enhancement programs and price management to try to offset
some of the lost profitability that comes with low volumes in a high
fixed cost business.”
Keith Mitchelhill, EXEcUTIvE GENErAl MANAGEr
21
Several new product releases and
an overall lift in the fashionability
of the division’s product range has
assisted in improving the relative
positioning of Boral’s product
range against competitor offerings.
During FY09, construction of a new $44 million large format
concrete masonry plant at Middle Swan, Western Australia
will commence. When commissioned, the new operation
will replace ageing plant at cannington, remove existing
production capacity constraints and facilitate exit from both
the cannington and Jandakot production sites, releasing
them for redevelopment. The new plant will manufacture
a wide range of walling and landscaping products at
lower costs. It will also deliver a wide range of improved
environmental and safety outcomes.
commissioning of a $6 million
upgrade of the ageing Springvale
concrete tile plant in victoria
delivered improved quality and
lower costs and removed previous
capacity constraints.
Boral Limited Annual Review 2008
favourable pricing environment, which
is helpful in recovering higher cost
inputs. pEp cost reduction initiatives and
inventory reduction will be a major area
of focus for 2008/09.
22
rEvIEW OF OpErATING DIvISIONS
Timber
Whilst market activity levels remain low,
Timber’s revenues increased by 11%
to $273 million during the year, driven
primarily by price rises and stronger
demand for structural timber products in
Queensland, formwork demand from the
buoyant Australian concrete market, and
an increase in flooring demand in the
alterations and additions (A&A) market,
particularly in the first half of the year.
Overall, Timber product prices improved
6% on average as a result of price
increases and a favourable product mix.
Increased log costs and wage escalation
pressures were more than offset by price
increases, including an improvement
in residue prices and manufacturing
efficiency gains at Herons creek and
at the engineered flooring operation at
Murwillumbah. This resulted in Timber
delivering a significant improvement in
EBITDA compared with the prior year,
driven primarily by improved softwood
and hardwood prices, manufacturing
costs and increased sales volumes.
Manufacturing performance continues
to improve following the capacity
investments during the year at the
Oberon Softwood mill and the upgrade
at Herons creek completed in the prior
year. The engineered flooring operation
also showed significant improvement
during the year through improved plant
efficiency. However, due to the overall
market softness, inventory levels of
hardwood and engineered flooring
increased during the year. With demand
in the New South Wales A&A market
weakening in the second half of the
year following interest rate rises, cost
reduction was the focus.
In July and August 2008, Boral Timber
ceased production at the higher cost
South Grafton and Walcha hardwood
mills due to the weak market conditions
experienced in New South Wales and
higher input costs.
Outlook
Demand for softwood and hardwood
timber products is expected to remain
relatively steady in 2008/09 with
activity in New South Wales remaining
depressed and a softening in Queensland
volumes offset by a lift in victoria. Supply
of Australian hardwood and softwood
timber products is expected to remain
constrained in the year, providing a
The Timber division employs around 800
people in its hardwood, softwood and
plywood operations, located on the East
Coast of Australia. Timber operates 17
manufacturing sites and six distribution
outlets. Products are sold into the
structural, commercial and renovation
markets and are distributed across
domestic and export markets.
Hardwood
Boral’s hardwood business operates
15 manufacturing facilities in New
South Wales and distributes product
to domestic and export markets. The
business has a strong position in both
structural and flooring markets. Boral
exports small quantities of woodchips
processed from sawmill waste, forest
residues and plantation stock from the
hardwood operations in northern New
South Wales.
Boral Limited Annual Review 2008
Softwood
Softwood’s single manufacturing
facility is located at Oberon in New
South Wales and operates through a
joint venture with Carter Holt Harvey.
The mill has a capacity of around
725,000 m3 following a recent capital
upgrade. The mill has successfully
produced to full capacity in the last
quarter of FY08. Softwood products are
primarily sold in East Coast markets.
Plywood
Boral is Australia’s leading plywood
producer and operates one large
plywood operation at Ipswich in
Queensland. Products are sold in all
major Australian markets.
“ Our Timber business is primarily New South Wales-based and is heavily
reliant on the housing sector. Because of the long and deep downturn in
New South Wales housing, we have worked hard to develop new products,
increase interstate sales, reduce manufacturing costs and increase prices
to recover cost increases. The greatest challenge in doing this has been the
dramatic increase in wood fibre and extraction costs. In some parts of our
business, we have seen wood supply costs increase by over 10% during
the year, with product prices tracking below this level.”
Bryan Tisher, EXEcUTIvE GENErAl MANAGEr
23
Boral Timber won the tender to
provide flooring to the prestigious
residential development the
“Sydney wharf”. This successful
project involved a new client,
Multiplex and the custom design
and manufacture of a new product.
Manufacturing performance
continues to improve following
the upgrade of Boral’s softwood
manufacturing facility at Oberon,
a joint venture with carter Holt
Harvey, with the mill now having
the capacity to process 725,000 m3
of incoming log.
Most of the Boral Timber products are sourced from Australian
Forestry Standard (AFS) certified forests. Boral Timber endorses
the AFS that covers over 90% of certified forestry in Australia and
is acknowledged as the only forest certification scheme with an
Australian Standard (AS4708-2007). Boral plywood achieved AFS
Chain of Custody certification for all of its products during the year.
Boral Limited Annual Review 2008
24
rEvIEW OF OpErATING DIvISIONS
plasterboard
Despite continued weakness in New
South Wales, Australian demand for
plasterboard grew by around 2%-3% in
the year, reflecting stronger new house
construction in Queensland. Sales
revenue from the Australian business
was up 7% to $376 million, assisted
by a 2% lift in average plasterboard
selling prices and stronger volumes
of plasterboard, cornice and jointing
compounds which we manufacture.
More sales of non-manufactured
products bought for resale through our
extensive network of company, owned
and operated specialised trade stores
also helped.
EBITDA for the year was steady despite
stronger sales revenues. A net $3 million
restructuring gain in the half year to
December 2007 was offset by one-
off costs in the half year to June 2008
associated with the commissioning of our
new plasterboard plant in Brisbane and
transitioning production from the existing
plant. Cost reduction initiatives helped to
maintain underlying margins in the face
of inflationary cost pressures, particularly
in energy and labour.
Construction of our new plant in the
Brisbane suburb of pinkenba was
completed during the year at a net
expected investment cost of up to
$119 million, 12% above the net
$106 million as budgeted. commissioning
was completed at the end of May 2008
which allowed our existing plasterboard
line at Northgate to close during June
2008 and our mothballed plant in the
Adelaide suburb of Gillman to be taken
out of service permanently and the land
sold.
In July 2007, GrA, our gypsum supply
joint venture with cSr, was restructured
and our share of its shipping duty
outsourced to cSl Australia pty ltd. cSl
is building a new self-unloading vessel
in china to help service this work and
which is expected to be trading on the
Australian coast as an Australian licensed
vessel by the end of September 2008.
Our Asian plasterboard Jv with lafarge,
lBGA, recorded an equity accounted
after tax profit of $18.1 million, 12%
above the same period last year and
after a $2.5 million adverse impact due
to the appreciation of the Australian
dollar. Underlying US dollar profits in
lBGA were up 29% year-on-year. lBGA
sales volumes and revenues lifted in all
markets with improved market conditions
in South korea, Thailand, Indonesia and
East china and market development
activity assisting growth in the Central
West of china and in vietnam. lBGA’s
cost improvement program, Excellence
2008, resulted in enhanced margins
despite transport and energy cost
pressures. The doubling of capacity to
75 million m2 p.a. at the Dangjin plant
in Seoul, and commissioning of the
The Plasterboard division is an
integrated plasterboard manufacturing,
distribution and installation business
with 54 company-owned distribution
and operating sites around Australia and
employing around 650 people.
Australia
Boral specialises in the manufacture,
distribution and installation of
plasterboard-based wall and ceiling
lining systems and aims to be
Australia’s leading supplier of wall
and ceiling lining solutions. We have
plasterboard manufacturing plants
in Queensland, New South Wales
and Victoria, a specialty plasters and
Boral Limited Annual Review 2008
jointing compounds plant in Victoria,
cornice plants in New South Wales
and Victoria, an integrated national
network of 54 specialist trade centres
and Australia’s largest residential wall
and ceiling installation service. Boral is a
50% shareholder in Gypsum Resources
Australia (GRA) and in Rondo Building
Systems, the leading metal products
supplier for wall and ceiling lining
systems.
Asia Joint Venture
Boral has a 50% shareholding of the
Lafarge Boral Gypsum Asia (LBGA) JV,
the leading multi-country plasterboard
producer in Asia (outside Japan). Around
new 8 million m2 p.a. capacity plant in
rajasthan, India and the new 10 million
m2 p.a. capacity plant in Chengdu, China
were all completed within time and cost
budgets during the year.
Outlook
A cyclical uplift in building construction
is expected to favourably impact on
future plasterboard demand, particularly
in Queensland and New South Wales.
However, uncertainty in relation to
affordability continues to work against
any early timing of such uplifts,
despite low rental vacancies. The
competitiveness of plasterboard imports
into Australia from Asia looks to have
been impacted by rising energy and
freight costs there whilst our product
range and segment tailored channels to
market look to position us well to meet
any future threat. Market conditions in
korea, Thailand and china are expected
to remain competitive over the next year.
However, strong underlying plasterboard
demand is expected to underpin longer-
term Asian returns.
one in every four square metres of
plasterboard sold in this region comes
from LBGA. The JV has 368 million m2
of plasterboard capacity, specialist
ceiling tile plants, a metal roll forming
mill and production capacity for jointing
compounds and industrial plasters,
all feeding established distribution
networks. Boral and Lafarge intend that
LBGA continues to profitably grow its
leadership position across Asia in a
manner which substantially increases
markets for plasterboard systems and
associated products and delivers value.
“ Delivering on growth investments in growth markets is our
current priority. We have finished commissioning our new
plasterboard plant in Queensland and the work-up phase is
going very well. The Queensland housing market, however,
was a bit softer towards the end of 2007/08, which could
create volume pressures in the shorter term. In Asia,
we are very happy with our growth investments and the
improved performance of the business.”
Ross Batstone, EXEcUTIvE GENErAl MANAGEr
25
lBGA is investing a total of
US$48 million to purchase land
and to construct a new plant at
the Baoshan Industrial Zone in
Shanghai, china. The new plant
is expected to be in operation
in the December 2009 quarter.
plasterboard production capacity
will be 34 million m2 p.a. initially
with site flexibility to increase
capacity in the future. The
additional plant will strengthen
lBGA’s leading position in East
China and position the business
well to supply the growing
market.
The construction of the new Queensland
plasterboard plant has been completed.
This 40 million m2 p.a. plant is adjacent
to the river in the suburb of pinkenba
and is Australia’s largest. Its gypsum
feedstock is taken directly from ship by
conveyor to plant so as to reduce costs
and to take trucks from the roads. The
process technology utilised is expected to
deliver enhanced energy efficiency. The
plant uses harvested roof water for part
of its process water needs and can use
recycled water when available.
Our plasterboard business
continues to benefit from product
research and development
activities. A robust innovation
process coupled with a strong
project management framework
continues the tradition of
successful delivery of new
products and systems such as
BoxcoteTM and IntrwallTM. Our
focus on lightweight, sustainable
interior building systems aims to
ensure that evolving market needs
will be fully met.
Boral Limited Annual Review 2008
26
rEvIEW OF OpErATING DIvISIONS
USA
In the USA, EBITDA earnings
decreased by 90% on the prior year to
US$10 million. The result was driven by
the continued significant deterioration in
housing activity, with US housing starts
down 27% to 1.13 million.
lower volumes, increased material
costs, and one-off costs (US$4 million)
associated with programs to reconfigure
Boral’s brick and roof tile production
network contributed to the severe fall
in earnings, particularly in the second
half. Cost reduction initiatives including
network optimisation aimed at reducing
fixed costs, continue to be implemented
in the brick and roof tile businesses,
with an expected incremental benefit of
US$31.5 million in 2008/09.
revenue from Bricks was down by 28%
due to a 27% decline in sales volumes.
Average brick prices reduced by 2%
due to a less favourable regional and
product mix, otherwise prices remained
stable. Boral bricks sold through direct
distribution remain at approximately 80%
of total volumes. Brick plant utilisation
averaged 56%, down from 79% last
year. EBITDA was significantly down
as a result of low volumes and related
production inefficiencies, as well as one-
off costs of US$2.5 million to reconfigure
the brick plant network and a
US$5 million write-down of specialised
plant used to manufacture product for
the high end market. The strong cost
reduction focus is continuing in 2008/09,
with targeted incremental benefits of
US$24 million.
MlT reported a loss of US$21 million
compared to a US$4 million loss last
year. Whilst average concrete roof tile
prices for the year were down 5%, June
2008 prices were up 7% year-on-year.
Sales volumes were down by 42%. The
decline in single family housing starts in
MlT’s four key markets averaged 48%
on the prior year (73% from the peak in
2005). Unit production costs increased
due to production inefficiencies, with
plant utilisation down to 27% compared
to 48% in the prior year and around 75%
in 2005/06.
Revenue of US$25 million from Clay Roof
Tiles was down 8% on last year because
of lower volumes more than offsetting
a 4% increase in average selling prices.
volumes were 11% lower as the overbuilt
western US and Florida markets were
further impacted by the tight US credit
market and high levels of foreclosures.
EBITDA was well below last year as
costs were impacted by lower production
to avoid inventory build.
profit from BMTI was lower than last
year. Higher prices and new product
initiatives did not offset lower volumes
resulting from the loss of the Belews
creek contract in December 2006
and because of continued very weak
residential construction in Florida and
Georgia.
revenue from the US concrete & Quarry
businesses (Denver and Oklahoma) of
US$125 million was 61% up on the prior
year primarily due to the newly acquired
Oklahoma operations in August 2007;
EBITDA increased. In Denver, concrete
Boral employs around 2,200 people at
160 sites across the USA.
Bricks
Boral Bricks operates 24 plants across 15
locations in eight states, primarily in the
south-east and south-west. Over 80%
of product sales are through a network
of around 60 company-owned direct
selling locations with the remainder via a
network of independent distributors.
Roof Tiles
Boral owns 50% of MonierLifetile (MLT).
The joint venture has 14 concrete roof tile
plants in the western and south-western
states and also in Florida. US Tile, the
country’s largest clay roof tile producer,
operates from a plant in Southern
California and in Northern California.
Through a 50% interest in a joint venture,
US Tile operates in Trinidad, producing
roof tiles for importation into Florida.
Fly Ash
Boral Material Technologies Inc. (BMTI),
one of the largest marketers and
distributors of coal combustion products
in the USA, has around 40 locations
including operations at electrical utility
volumes were 10% lower than last
year as commercial and infrastructure
sales only partially offset the impact
of a weak residential market and poor
weather conditions. price increases
and cost controls offset higher fuel and
other inflationary cost impacts. EBITDA
in Denver was down year-on-year.
Integration of the Oklahoma business is
complete, however, performance was
below expectations because of energy
related cost increases and lower than
expected volumes due in part to poor
weather.
Outlook
It remains unclear when a turnaround in
US housing activity may occur. Market
forecasters currently expect US housing
starts to be around 900,000 in 2008/09
compared to annualised starts of around
1.0 million in the June half 2008. Brick
utilisation is around 40% at the start
of 2008/09 and in concrete roof tiles it
remains at around 27%. lower volumes
will adversely impact brick and roof tile
sales volumes and earnings but increased
benefits from cost reduction programs
will be delivered, including efficiencies
from the reconfiguration of Boral’s brick
plant network. US construction materials
markets are expected to be weaker
in 2008/09 compared with 2007/08.
Overall, US earnings are expected to be
lower in 2008/09.
Boral is well positioned in the markets
it serves with low cost, modern
manufacturing facilities, and will
deliver benefits as markets recover.
plants, fly ash terminals and sales offices.
With cementitious properties, fly ash is
used as a cement substitute.
Construction Materials
Boral has a strong number three position
in the growing Denver market with eight
concrete plants, 109 trucks, three sand
and gravel deposits and two masonry
plants. In August 2007, Boral acquired
Schwarz concrete and sand business and
Arbuckle limestone quarry in Oklahoma.
The business has 18 concrete plants, four
sand mines and a limestone quarry.
“ 2007/08 has been the most difficult year for Boral’s US businesses
since it began trading in the US some 30 years ago. Demand from
the housing market has halved over the past two years and in some
markets, activity has reduced by as much as 75% from 2006 peak
levels. We have dramatically reduced our workforce, mothballed
plants, and optimised plant networks. We have been relentless around
reducing overhead and other fixed costs to minimise the impacts on
Boral’s overall profitability during the US downturn.”
Emery Severin, EXEcUTIvE GENErAl MANAGEr
27
US$10 million acquisition of sand
and gravel reserves in Denver,
Colorado are very well located
to supply the Denver market as
existing reserves come to the
end of their useful lives.
In August 2007, Boral acquired
the concrete and sand assets of
Schwarz readymix and the quarry
assets of Davis Arbuckle Materials
for US$84 million. This acquisition
positions Boral as the second
largest concrete producer in
Oklahoma city and demonstrates
Boral’s ongoing commitment to
growing in construction materials
in the USA.
US Tile’s new US$30 million clay
roof tile plant in Ione, california
was commissioned during the year
with an output of 130,000 squares1
per annum. Whilst this new plant
positions Boral well for when
Western housing markets recover,
it will operate at high utilisation
rates during the downturn, allowing
higher cost capacity at Corona to
be mothballed.
1 One square=100 square feet.
Boral Bricks new US$55 million, 120 million standard brick
equivalent plant at Terre Haute, Indiana completed commissioning
during the year. Around 80% of the energy requirements of the
plant can come from landfill gas, which is considerably lower cost
than more conventional sources of energy. This low cost plant will
allow older high cost brick capacity to be mothballed during the
downturn and positions Boral well when the market recovers.
Boral Limited Annual Review 2008
28
Management Committee
Ross Batstone 6
ExECutivE gEnERAl MAnAgER,
PlAstERBOARd
Ross is 60 and was Boral’s divisional general
Manager, Plasterboard Australia from 1996-
2000 before becoming Executive general
Manager of the Plasterboard division. He was
previously Boral’s divisional general Manager,
Roofing from 1991-1995, Chief Executive
Montoro Resources ltd from 1988-1990
and held various roles at shell Company of
Australia from 1970-1987. He holds chemical
engineering and commerce degrees from
Queensland university.
Emery Severin 7
PREsidEnt, BORAl usA
Emery is 52 and was previously Executive
general Manager of the Australian
Construction Materials division from 1999–
2004 before being appointed as President of
Boral usA in August 2004. He was previously
national general Manager of Blue Circle
southern Cement from 1998-1999. Prior to
that he was Regional general Manager of
Boral’s nsW Construction Materials group
from 1996-1998. Prior to joining Boral he
held various management roles at BHP steel
from 1986-1995. Emery has a doctorate of
philosophy in physical chemistry from Oxford
university and a science degree (First Class
Honours) from the university of nsW.
Ken Barton 8
CHiEF FinAnCiAl OFFiCER
Ken is 42 and has been Boral’s Chief Financial
Officer since december 2002. He was
previously vice President and Chief Financial
Officer of Boral industries inc in the usA
from August 2000. Prior to joining Boral, he
was vice President Finance, Pioneer usA
from 1997-2000 and prior to that he was a
Partner in the Corporate Finance division of
Arthur Andersen based in sydney. Ken has
a Bachelor of Economics degree from the
university of sydney and is an Associate of
the institute of Chartered Accountants in
Australia and a fellow of the Financial services
institute of Australia.
Michael Scobie 9
gEnERAl MAnAgER, CORPORAtE
sERviCEs And COMPAny sECREtARy
Michael is 62 and is general Manager,
Corporate services and Company secretary
of Boral. He joined the Boral group as a
corporate lawyer and has 35 years’ service.
He became the Company secretary in 1983
and has also held general counsel and other
corporate roles since then. Michael has a law
degree from the university of sydney.
Rod Pearse 1
CEO And MAnAging diRECtOR
Biography on p.31
John Douglas 2
ExECutivE gEnERAl MAnAgER, AustRAliAn
COnstRuCtiOn MAtERiAls
John is 46 and has been in his current position
since 2004. He joined Boral in 1995 and has
held roles as Regional general Manager of
Boral’s nsW Construction Materials business,
general Manager of nsW Metropolitan
Quarries and general Manager, strategic
Planning for Boral’s Construction Materials
group. Prior to joining Boral, John held
various positions with the Boston Consulting
group, Pioneer Concrete uK, John Mowlem
international and douglas Partners. He holds
a civil engineering degree with First Class
Honours from the university of Adelaide and
an MBA from london Business school.
Phil Jobe 3
ExECutivE gEnERAl MAnAgER, CEMEnt
Phil is 54 and has been Executive general
Manager of the Cement division since late
1999. Prior to this he was Regional general
Manager for Boral’s nsW Construction
Materials business and general Manager
of Boral’s Construction Related Businesses
from 1995-1999. Before joining Boral, Phil
was Managing director of the stegbar group
of Companies from 1987-1994. He holds a
commerce degree from the university
of nsW.
Keith Mitchelhill 4
ExECutivE gEnERAl MAnAgER,
ClAy & COnCREtE PROduCts
Keith is 45 and rejoined Boral as Executive
general Manager of Clay & Concrete
Products in August 2002 from sirius
telecommunications where he was CEO of
the Phoneware division. He was previously
Executive general Manager of Boral timber
from 2000-2001, general Manager, Boral
Masonry from 1997-1999 and general
Manager Marketing, Boral Building Products
group from 1996-1997. Prior to that he held
positions with laminex BtR nylex and
nEC Australia. He holds an economics
degree (Honours) and an MBA from
Monash university.
Bryan Tisher 5
ExECutivE gEnERAl MAnAgER, tiMBER
Bryan is 45 and was appointed Executive
general Manager, timber in March 2007.
Prior to this he was general Manager
Corporate development, a role which he
held from 2000-2007, and general Manager,
strategic Planning for Boral’s Construction
Materials group from 1998-1999. Prior to
joining Boral he held a variety of positions at
Rio tinto (1985-1998) including roles in project
finance, engineering design and construction
in a variety of locations including Australia,
usA, Africa and indonesia. He holds a civil
engineering degree (First Class Honours) from
Monash university and an MBA from Harvard
Business school.
Boral Limited Annual Review 2008
1
3
5
7
9
2
4
6
8
10
11
Robin Town 10
gEnERAl MAnAgER, HuMAn REsOuRCEs
Robin is 56 and has been Boral’s general
Manager, Human Resources since June
2001. He was previously President of Boral
Material technologies in the usA from
1999-2001 and Regional general Manager
of Boral’s Construction Materials business in
Queensland from 1996-1999. Prior to joining
Boral, he worked in the cement industry with
Queensland Cement for 23 years. He holds
a chemical engineering degree from the
university of Queensland.
Andrew Warburton 11
gEnERAl MAnAgER,
CORPORAtE dEvElOPMEnt
Andrew is 44 and is general Manager,
Corporate development. He was previously
national general Manager, Quarry End
use from 2003-2007. Prior to joining Boral,
he held marketing, business development
and financial positions in the plastics and
electronics industries based in Europe and
funds management in Australia. Andrew holds
an economics degree from the university of
sydney and an MBA from insEAd.
29
Financial Review
Financial Performance
significant external factors weighed
heavily on the group’s results for
2007/08. A substantial decline in us
housing starts had a direct impact
on the us businesses, particularly
the brick and roof tile operations,
which resulted in EBit for the us
segment declining by 130% to a loss
for the year of $27 million. A rapid
escalation in energy costs resulted in
a contraction of margins, particularly
in the Australian Construction
Materials businesses. tighter credit
markets have led to increased funding
costs and tighter lending conditions
broadly; however, interest costs
for Boral remained flat and debt
maturities were extended. tighter
credit conditions have led to some
greater levels of customer defaults in
the us and Australia, although at this
stage not at levels materially above
prior years. despite these factors,
Australian operating profits increased
12% over the prior year, largely as a
result of improved prices and volumes
across most of the Australian
businesses.
largely as a result of the weaker us
markets, Boral’s net profit for the year
decreased by 19% to $242.8 million.
this net profit is equivalent to 40.7
cents per share, a decrease of around
9.3 cents per share compared with
the prior year. A final fully franked
dividend of 17 cents per share has
been declared, bringing the full year
dividends to 34 cents. the dividends
remained unchanged from 2007.
the group’s revenues increased by
5.9% compared with the previous
year to $5.2 billion. the increase in
revenues can be largely attributed
to increased prices across most
Australian businesses. Price and
volume increases, particularly in the
construction materials segment,
contributed to the growth in revenue
with around a 7% price increase in
concrete, 5% in quarry products and
3% in cement.
despite continued weak housing
markets across Australia’s East
Coast, revenue increased 6% in
the Australian Building Products
segment. the revenue growth was
driven largely by price increases
combined with the volume impacts
of growth initiatives. us revenues in
local currency declined by 13% as
housing starts across the us declined
by around 27%. the revenue decline
does not include the impact of
Income Statement
for the year ended 30 June
sales revenue
EBitdA
depreciation and amortisation
Write-down of thailand goodwill
EBIT
net interest
Operating profit before tax
income tax expense
Minority interests
Profit after tax
Earnings per share (cents)
lower revenues in the Monierlifetile
business which is equity accounted.
Monierlifetile’s markets experienced
greater declines in housing starts
than the brick markets and the us as
a whole. the Australian dollar was
stronger against the us dollar, by
around 14%, which resulted in the
reported Australian dollar revenues
decreasing by around 24%. Revenues
in the indonesian and thailand
concrete and quarry businesses,
rose around 5%.
the group’s underlying1 operating
profit before interest and tax for the
year declined by 16% compared to
the previous year to $448.0 million.
the Australian operations generated
operating profits of $465.3 million
during the year, up 12% compared
to the prior year. the improvement
in earnings was due to increased
building activity in a number of key
markets, particularly in non-residential
segments, as well as favourable
pricing outcomes.
the Construction Materials
operations reported an operating
profit of $350.9 million, which
compares to $318.0 million in the
prior year. strength in the non-
residential building markets and in the
infrastructure segments underpinned
increased volumes across most
construction materials businesses,
with the notable exception of nsW.
Price increases were achieved in
cement, concrete and aggregates
and asphalt. these price increases,
together with cost savings and higher
volumes, were not sufficient to offset
cost increases and the profit margin
increase during the year decreased
to 11.9% from 12.5%.
Results from the Australian Building
Products businesses were up by
15% compared to the prior year.
this segment includes bricks,
2008
$ millions
5,198.5
688.2
(240.2)
(31.9)
416.1
(111.9)
304.2
(62.0)
0.6
242.8
40.7
2007
$ millions
4,909.0
762.3
(231.4)
–
530.9
(110.5)
420.4
(122.3)
–
298.1
50.0
roof tiles, masonry, plasterboard,
timber and windows which are all
heavily reliant on the new residential
construction market as a driver of
demand. the Australian Building
Products businesses all achieved
price increase. Profits were lower
in bricks due to a weakening in
the brick-intensive West Australian
housing market. Profits in other
building products businesses were in
line with or higher than the prior year.
the us housing market continued
to weaken during 2008. substantial
declines in activity, particularly in
single family, detached housing
led to losses being incurred in the
us segment. Brick sales volumes
declined by 27% and prices declined
by around 2%. Concrete tile sales
volumes declined by 42% and
prices were lower by around 5%.
despite price increases and cost
improvements, volume declines in
the denver construction materials
business led to reduced profits.
Profits from the fly ash business were
lower than the prior year.
to further increase Boral’s exposure
to the us construction materials
market, a further acquisition was
announced during the year. during
the year, $99.8 million was spent to
acquire the concrete and aggregate
in Oklahoma.
in Asia, prices and volumes improved
in plasterboard in most major
markets. during the year, new plants
were successfully commissioned in
south Korea, india and China.
1 Excluding goodwill and tax provision adjustments
Boral Limited Annual Review 2008
30
30
Financial Review
income statement
BORAl liMitEd And COntROllEd EntitiEs
the reported result from the Asian
plasterboard business was 12%
above prior year.
Balance Sheet
As at 30 June
the Construction Materials
businesses in Asia reported weaker
results due to lower margins as cost
increases were not recovered through
higher prices. Concrete volumes
were lower in thailand due to
lower levels of construction activity.
Challenging market conditions have
been experienced in our thailand
concrete and quarry businesses and
trading conditions remain difficult; we
have therefore chosen to write off the
$31.9 million of goodwill which arose
on acquisition of the business in July
2004.
net interest expense increased
from $110.5 million to $111.9 million,
largely due to an increase in average
net debt. underlying EBit interest
cover declined from 4.8 times to
4.0 times, largely as a result of the
decline in earnings.
the average underlying tax rate for
the year was lower than the prior
year at 26.8%, due to the tax effect
of the losses incurred in the us
which are subject to a higher tax
rate than Australian earnings. Boral’s
reported tax expense of $62 million
includes a benefit of $28.1 million
arising from the resolution of a
number of outstanding matters
with the Australian taxation Office
predominantly around the utilisation
of tax losses and capital gains arising
from the demerger in 2000.
the interim and final dividends for the
year totalled $202.1 million which,
combined, represent a payout ratio
of 83% of profit after tax, a higher
payout ratio than the 68% ratio for
the prior year. Boral continued its
dividend Reinvestment Plan (dRP)
during the fiscal year. this resulted
in proceeds of $41.4 million being
applied to the issue of 6.1 million new
ordinary shares. Boral will continue to
offer a dRP and will again undertake
an on market buy-back to reduce
earnings per share dilution. the group
conducted an off-market share buy-
back during the year which resulted
in 20.0 million ordinary shares being
bought back and cancelled at a
price of $5.65 per share. the price
comprised a capital component of
$2.84 per share and a fully franked
dividend component of $2.81 per
share.
Boral Limited Annual Review 2008
Boral Limited Financial Report 2008
Current assets
non-current assets
Total assets
Current liabilities
non-current liabilities
Total liabilities
Net assets
Total equity
Debt and Gearing
As at 30 June
total debt
total cash and deposits
Net debt
Total shareholder equity
Gearing ratios
net debt: equity (%)
net debt: equity plus net debt (%)
interest cover1 (times)
Financial Position
the net financial position of the group
remained relatively unchanged during
the year with total equity decreasing
by 2.6% to $2,909.6 million. net
borrowings increased by 2% to
$1,515.1 million from $1,482.3 million.
the increase in net borrowings was
after approximately $327 million
of growth capital and acquisitions
during the year and was partly
offset due to a favourable currency
adjustment from the appreciation of
the Australian dollar and translation of
our significant us dollar borrowings.
the group’s gearing (measured as net
debt to equity) increased from 50%
to 52% and remains at the lower end
of the stated target range of 40% to
70%.
Boral’s long-term and short-term
credit ratings continued at BBB+/
A2 with standard & Poor’s and Baa1/
P2 with Moody’s investors service,
although in both cases a negative
outlook was noted during the year.
At 30 June 2008, the group had
available undrawn committed and
uncommitted debt facilities of
$2,570 million. Boral’s average debt
maturity profile at 30 June 2008 was
6.0 years compared with 4.9 years at
30 June 2007.
Boral has hedged its foreign
exchange exposures (primarily us
dollar denominated) arising from
investments in overseas operations.
Earnings from foreign operations are
not hedged.
2008
$ millions
1,570.8
4,324.2
5,895.0
1,025.3
1,960.1
2,985.4
2,909.6
2,909.6
2008
$ millions
1,562.5
47.4
1,515.1
2,909.6
52
34
4.0
2007
$ millions
1,451.0
4,365.6
5,816.6
921.8
1,907.5
2,829.3
2,987.3
2,987.3
2007
$ millions
1,518.0
35.7
1,482.3
2,987.3
50
33
4.8
Boral is exposed to financial risk in its
operations as a result of fluctuations
occurring in interest/foreign exchange
rates and certain commodity prices.
Boral uses financial instruments to
manage such risks.
Boral’s reported return on
shareholders’ funds declined from
10.0% to 8.4% during the period
as reported earnings declined by
around 19%.
Cash Flow
the group generated operating
cash flows of $581.8 million after
payment of interest and income tax.
this represents an increase of 21%
or $100 million compared to the cash
flow reported last year. the increase
reflects the lower earnings offset by
higher dividends from associates,
lower tax payments and improved
working capital management.
these cash flows were used to fund
around $496.0 million of capital and
acquisition expenditure. this largely
related to major capital projects in
the us and Australia, including a new
plasterboard plant in Queensland,
the new brick plant in indiana, new
rooftile operations in California and
a number of new asphalt plants in
Australia. in addition, $99.8 million
was invested in the acquisition of
construction materials operations in
Oklahoma City in the us.
Board of directors
Kenneth J Moss, AM 1
nOn-ExECutivE CHAiRMAn, AgE 63.
dr Moss joined the Boral Board in 1999
and became the Chairman of directors
in 2000. dr Moss is the Chairman of
Centennial Coal Company limited
and a director of gPt RE limited (the
responsible entity for the general Property
trust) and Macquarie Capital Alliance
group (the responsible entity for the
Macquarie Capital Alliance trust).
dr Moss was previously the Managing
director of Howard smith limited and
is experienced in building materials
businesses. He has an engineering
degree (Honours) and a doctorate of
philosophy in mechanical engineering
from newcastle university.
dr Moss is a member of the
Remuneration Committee.
Rodney T Pearse 2
MAnAging diRECtOR, AgE 61.
Mr Pearse became the Managing director
and Chief Executive Officer of Boral in
January 2000. He joined the Boral group
as the Managing director, Construction
Materials group in 1994. Mr Pearse
had previously held senior management
positions in shell international, shell
Australia and CsR limited. He is a
board member of the Business Council
of Australia, a member of the Advisory
Panel of the Australian graduate school
of Management, the Chairman of
Outward Bound Australia and serves as
a Councillor for the Australian Business
Arts Foundation. He has a commerce
degree (Honours) from the university
of new south Wales and an MBA (High
distinction) from Harvard university.
Elizabeth A Alexander, AM 3
nOn-ExECutivE diRECtOR, AgE 65.
Ms Alexander joined the Boral Board in
1994. Ms Alexander is the Chairman of
Csl limited and a director of dExus
Funds Management limited (the
responsible entity for dExus Property
group, which was formerly named dB
RREEF trust). A chartered accountant, she
was a partner in PricewaterhouseCoopers
in Melbourne until 2002. Ms Alexander
is a member of the takeovers Panel and
the Financial Reporting Council. she has a
commerce degree from the university of
Melbourne.
Ms Alexander is the chair of the
Audit Committee.
J Brian Clark 4
nOn-ExECutivE diRECtOR, AgE 59.
dr Clark joined the Boral Board in May
2007. dr Clark has experience as a
non-executive director in Australia and
overseas. He is a director of AMP limited
and a member of the Merrill lynch
Australian Advisory Board. in south
Africa, he was President of the Council for
scientific and industrial Research (CsiR)
and CEO of telkom sA. He also spent
10 years with the uK’s vodafone group as
CEO vodafone Australia, CEO vodafone
Asia Pacific and group Human Resources
director. dr Clark has a doctorate in
physics from the university of Pretoria,
south Africa and completed the Advanced
Management Program at the Harvard
Business school.
dr Clark is a member of the
Remuneration Committee.
E John Cloney 5
nOn-ExECutivE diRECtOR, AgE 67.
Mr Cloney joined the Boral Board in
1998. Mr Cloney is the Chairman of QBE
insurance group limited and a director
of Maple-Brown Abbott limited and ABn
AMRO Australia Holdings Pty limited.
He is a member of the Advisory Council
in Australia of ABn AMRO. His career
was in international insurance and he
was previously the Managing director of
QBE insurance group limited. Mr Cloney
is a fellow of the Australian institute
of Management and the Australia and
new Zealand institute of insurance and
Finance.
Mr Cloney is the Chairman of the
Remuneration Committee.
Robert L Every 6
nOn-ExECutivE diRECtOR, AgE 63.
dr Every joined the Boral Board in
september 2007. He is the Chairman
of iluka Resources limited and deputy
Chairman of Wesfarmers limited (and
will become the Chairman of Wesfarmers
limited following its Annual general
Meeting in november 2008). dr Every
held senior executive positions with
tubemakers of Australia and BHP and
was the Managing director and CEO of
Onesteel limited. dr Every is a fellow of
the Australian Academy of technological
sciences and Engineers. He has a
science degree (honours) and a doctorate
of philosophy (metallurgy) from the
university of new south Wales.
dr Every is a member of the
Remuneration Committee.
Richard A Longes 7
nOn-ExECutivE diRECtOR, AgE 63.
Mr longes joined the Boral Board in 2004.
He is a director of Austbrokers Holdings
limited and Metcash limited. Mr longes
is a lawyer and a non-executive director of
investec Bank (Australia) limited. He was
previously an executive of investec Bank,
a principal of Wentworth Associates, the
corporate advisory and private equity
group, and a partner of Freehills, a leading
law firm. He has arts and law degrees
from the university of sydney and an
MBA from the university of new south
Wales.
Mr longes is a member of the
Audit Committee.
31
1
3
5
7
2
4
6
8
J Roland Williams, CBE 8
nOn-ExECutivE diRECtOR, AgE 69.
dr Williams joined the Boral Board in
1999. He is a director of Origin Energy
limited. dr Williams had an international
career with the Royal dutch/shell group
from which he retired as Chairman and
Chief Executive of shell Australia. He has
a chemical engineering degree (Honours)
and a doctorate of philosophy from the
university of Birmingham.
dr Williams is a member of the
Audit Committee.
Boral Limited Annual Review 2008
32
Corporate governance
this section of the Annual Review
discloses the key details of Boral’s
governance framework. Boral is
committed to ensuring its policies and
practices reflect good governance
and compliance with all requirements
applying to Australian listed
companies.
the directors consider that the
governance framework and
adherence to that framework are
fundamental in demonstrating that
they are accountable to shareholders
and are appropriately overseeing the
management of risk and the future
direction of the Company.
in August 2007, the Australian
securities Exchange (Asx) Corporate
governance Council released its
revised Corporate governance
Principles and Recommendations.
Even though disclosure by Boral
under these revised Principles and
Recommendations is not required
until the 2009 annual report, Boral
has made an early transition to
reporting by reference to them in
this Corporate governance section.
Boral complied with the revised
Principles and Recommendations in
all substantial respects throughout the
2008 financial year. in any instance
where Boral has an alternative
approach to a recommendation, this
has been disclosed and explained.
Principle 1: Lay Solid Foundations
for Management and Oversight
Responsibilities of the Board
and Management
the Board of directors is responsible
for setting the strategic direction
of the Company and for overseeing
and monitoring its businesses and
affairs. directors are accountable to
the shareholders for the Company’s
performance.
the Board reviews and approves the
Company’s strategic and business
plans and guiding policies. day to
day management of the Company’s
affairs and implementation of its
strategy and policy initiatives are
delegated to the chief executive
officer and senior executives, who
operate in accordance with Board
approved policies and delegated limits
of authority.
Boral Limited Annual Review 2008
the responsibilities of the Board
include:
• Oversight of the Company including
its conduct and accountability
systems.
• Reviewing and approving overall
financial goals for the Company.
• Approving strategies and plans for
Boral’s businesses to achieve these
goals.
• Approving financial plans and annual
budgets.
• Monitoring implementation of
strategy, business performance and
results and ensuring appropriate
resources are available.
• Approving key management
recommendations (such as major
capital expenditure, acquisitions,
divestments, restructuring and
funding).
• Appointing, rewarding and
determining the duration of
the appointment of the chief
executive officer and ratifying the
appointments of senior executives
including the chief financial officer
and the company secretary.
• Reviewing the performance of the
chief executive officer and senior
management.
• Reviewing and verifying systems
of risk management and internal
compliance and control, codes of
conduct and legal compliance.
• Reviewing sustainability
performance and overseeing
occupational health and safety and
environmental management and
performance.
• Approving and monitoring
financial reporting and reporting
to shareholders on the Company’s
direction and performance.
• Meeting legal requirements and
ensuring that the Company acts
responsibly and ethically and
prudently manages business risks
and Boral’s assets.
in fulfilling the Board’s
responsibilities, directors seek to
enhance shareholder value.
Policies, plans and strategies and
limits of delegated authority, which
have been approved by the Board
and are reviewed regularly, define
the responsibilities and functions of
senior executives.
Work of Directors on Strategy
and Other Matters
the Board reviews the strategic
action plan, approves the annual
budget and monitors the Company’s
performance against them. initiatives
have included disciplined growth
strategies, capital management, cost
efficiencies and other aspects of
operational improvement programs.
directors and senior management
meet annually for two days to discuss
in detail the strategic direction of the
Company’s businesses. the Board’s
focus is on improving shareholder
returns and pursuing disciplined
growth.
Each month, directors receive a
detailed operating review from
the Managing director and Chief
Executive Officer (CEO) regardless
of whether or not a Board Meeting is
being held.
non-executive directors would spend
approximately 30 days each year
on Board business and activities
including Board and Committee
meetings, the strategy meeting,
visits to operations and meeting
employees, customers, business
associates and other stakeholders.
during the year, the Board visited a
number of sites including Highland
Pine Products Pty limited (50%
owned) in Oberon, nsW and the
new plasterboard plant and sunstate
Cement limited (50% owned) in
Brisbane, Queensland. the Board also
spent a week in March 2008 in the
usA visiting Boral’s brick, roof tile and
construction materials operations and
Monierlifetile llC (50% owned).
the Chairman regularly communicates
with the CEO to review key issues
and performance trends.
Evaluating the Performance
of Senior Executives
the performance of senior executives
is reviewed annually against
appropriate measures as part of
Boral’s performance management
system, which is in place for all
managers and staff. the system
includes processes for the setting of
objectives and the annual assessment
of performance against objectives and
workplace style and effectiveness.
On an annual basis, the Remuneration
Committee and subsequently the
non-executive directors formally
review the performance of the CEO.
the criteria assessed are both
qualitative and quantitative and
include:
• profit performance.
• other financial measures.
• safety performance.
• strategic actions.
the CEO annually reviews the
performance of each of Boral’s
senior executives being members of
the Management Committee using
criteria consistent with those used
for reviewing the CEO and reports to
the Board through the Remuneration
Committee on the outcome of those
reviews.
the performance of the CEO and the
Company’s senior executives during
the 2008 financial year was assessed
in August 2008 in accordance with
the above processes.
Principle 2: Structure the Board
to Add Value
Structure of the Board
the Board of directors comprises
seven non-executive directors
(including the Chairman) and one
executive director, the CEO. the roles
of Chairman and CEO are separate.
the skills, experience and expertise
of each director are set out on page
31 of the Annual Review.
the period of office held by each
current director is:
Director Independence
the Board has assessed the
independence of non-executive
directors (including the Chairman)
in light of their interests and
relationships and considers all
of them to be independent. the
criteria considered in assessing the
independence of non-executive
directors include that:
• The Director is not a substantial
shareholder of the Company or an
officer of, or otherwise associated
directly with, a substantial
shareholder.
• The Director is not employed, or
has not previously been employed
in an executive capacity by a Boral
company, and there has been
a period of at least three years
between ceasing such employment
and serving on the Board.
• The Director has not within the last
three years been a principal of a
professional adviser or consultant
to a Boral company, or an employee
associated with the service
provided.
• The Director is not a significant
material supplier or customer of a
Boral company or an officer of or
otherwise associated directly or
indirectly with a material supplier or
customer.
• The Director has no material
contractual relationship with a Boral
company other than as a director.
Appointed
last elected at an Annual general
Meeting
1999
2000
1994
27 October 2006
not applicable
21 October 2005
Ken Moss, Chairman
Rod Pearse, CEO
Elizabeth Alexander
Brian Clark
John Cloney
Bob Every
Richard longes
Roland Williams
May 2007
29 October 2007
1998
27 October 2006
september 2007
29 October 2007
2004
1999
29 October 2007
29 October 2007
the Board selects the Chairman from the non-executive independent
directors. the Chairman leads the Board and is responsible for the efficient
organisation and conduct of the Board’s functioning. He ensures that directors
have the opportunity to contribute to Board deliberations.
33
it is considered that none of the
interests of directors with other
firms or companies having a business
relationship with Boral could
materially interfere with the ability of
those directors to act in Boral’s best
interests. Material in the context of
director independence, is generally
speaking, regarded as being 5% of
the revenue of the supplier, customer
or other entity being attributable to
the association with a Boral company
or companies.
Nomination and Appointment
of Directors
the Board has considered
establishing a nomination Committee
and decided in view of the relatively
small number of directors that
such a Committee would not be
a more efficient mechanism than
the full Board for detailed selection
and appointment practices. the full
Board performs the functions that
would otherwise be carried out by
a nomination Committee.
the Board’s policy for the selection,
appointment and re-appointment of
directors is to ensure that the Board
possesses an appropriate range of
skills, experience and expertise to
enable the Board to most effectively
carry out its responsibilities. As part
of this appointment process, the
directors consider Board renewal and
succession plans and whether the
Board is of a size and composition
that is conducive to making
appropriate decisions.
the appointment of Bob Every
as a new non-executive director
in september 2007 followed a
process during which the full
Board assessed the necessary
and desirable competencies of
potential candidates and considered
a number of names before deciding
on the most suitable candidate for
appointment. the selection process
includes obtaining assistance from
an external consultant to identify
suitable candidates and in assessing
them. Candidates identified as being
suitable are interviewed by one or
more directors. Confirmation is
sought from prospective directors
that they would have sufficient time
to fulfil their duties as a director.
Boral Limited Annual Review 2008
34
Corporate governance
the key terms and conditions relative
to the appointment of directors,
the Board’s responsibilities and the
Company’s expectations of directors
are set out in a letter when a new
non-executive director is appointed.
Tenure of Directorships
the Company’s Constitution was
amended at the 2007 Annual general
Meeting to require that a director
must not hold office (without
re-election) past the longer of the
third Annual general Meeting or three
years following that director’s last
election or appointment.
this amendment brought the
Constitution into line with the
Asx listing Rules on the issue of
retirement of directors. Retiring
directors are eligible for re-election.
When a vacancy is filled by the Board
during a year, the new director must
stand for election at the next Annual
general Meeting. the requirements
relating to retirement from office do
not apply to a managing director of
the Company.
the directors believe that limits on
tenure may cause loss of experience
and expertise that are important
contributors to the efficient working
of the Board. As a consequence,
the Board does not support arbitrary
limits on tenure and regards
nominations for re-election as not
being automatic but based on the
individual performance of directors
and the needs of the Company.
Before the business to be conducted
at the Annual general Meeting is
finalised, the Board discusses the
tenure of any director standing for
re-election in the absence of those
directors.
Evaluation of Board Performance
the Board periodically undertakes
an evaluation of the performance of
the Board and its Committees. the
evaluation encompasses a review of
the structure and operation of the
Board, the skills and characteristics
required by the Board to maximise
its effectiveness and whether the
blending of skills, experience and
expertise and the Board’s practices
and procedures are appropriate for
the present and future needs of
the Company. steps involved in the
evaluation include the completion of a
questionnaire by each director, review
of responses to the questionnaire
at a Board Meeting and a private
Boral Limited Annual Review 2008
discussion between the Chairman
and each other director.
and other obligations to legitimate
stakeholders.
An evaluation of the Board’s
performance was not undertaken in
the 2007/08 financial year but one is
currently underway.
Conflicts of Interest
directors are required to declare
the nature of any interest they have
in business to be dealt with by the
Board. Except as permitted by the
Corporations Act, directors leave
Board Meetings and do not vote
when business in which they are
interested is considered.
Independent Advice and
Indemnification
After consultation with the Chairman,
directors may seek independent
professional advice in furtherance
of their duties at the Company’s
expense.
Pursuant to the Company’s
Constitution and agreements with
directors and to the extent permitted
by law, the Company must indemnify
directors and executive officers
against liabilities to third parties
incurred in their capacity as officers of
the Company and against certain legal
costs incurred in defending an action
for such a liability.
Principle 3: Promote
Ethical and Responsible
Decision-making
Conduct and Ethics
the Board’s policy is that Boral
companies and employees must
observe both the letter and spirit
of the law, and adhere to high
standards of business conduct and
comply with best practice. Boral’s
Management guidelines contain a
Code of Corporate Conduct and other
guidelines and policies which set
out legal and ethical standards for
employees. As part of performance
management, employees are
assessed against the Boral values
of leadership, respect, focus,
performance and persistence.
this policy and code guide the
directors, the CEO, the chief financial
officer, the company secretary
and other key executives as to the
practices necessary to maintain
confidence in the Company’s
integrity and as to the responsibility
and accountability of individuals for
reporting and investigating reports
of unethical practices. the code
also guides compliance with legal
A copy of Boral’s Code of Corporate
Conduct is available on Boral’s
website.
Dealings in Boral Shares
the Board has a policy that Boral
limited group directors, officers
and senior executives may not buy
or sell Boral shares except within a
period of one month after any major
public announcement regarding
the Company’s results and trading
prospects (such as the yearly and half
yearly profit announcements and the
Chairman’s and Managing director’s
Addresses to the Annual general
Meeting). the policy precludes
executives from entering into any
hedge or derivative transactions
relating to options or share rights
granted to them as long-term
incentives, regardless of whether or
not the options or share rights have
vested. the policy supplements
the Corporations Act provisions
precluding directors and officers
from trading in securities when they
are in possession of price sensitive
“insider” information.
A copy of Boral’s share trading Policy
is available on Boral’s website.
share dealings by directors are
promptly notified to Asx.
Boral directors must hold a minimum
shareholding of 1,000 shares.
Principle 4: Safeguard Integrity
in Financial Reporting
Audit Committee
Boral has an Audit Committee which
assists the effective operation of the
Board. the Audit Committee is wholly
comprised of independent non-
executive directors.
the Audit Committee is chaired by
Elizabeth Alexander with Richard
longes and Roland Williams being
the other members. the members
possess sufficient technical expertise
to fulfil the functions of the Committee.
the Committee met five times during
the 2008 financial year, and attendance
by members at these meetings
is shown in paragraph (13) of the
directors Report on page 39.
the Audit Committee has a formal
Charter which sets out its role
and responsibilities, composition,
structure and membership
requirements. the Committee has
the necessary power and resources
Balance sheet
BORAl liMitEd And COntROllEd EntitiEs
to meet the Charter including rights
of access to management and
auditors (internal and external) and
to seek explanations and additional
information.
the Audit Committee Charter is
available on Boral’s website.
the Committee also reviews
the Company’s compliance with
applicable accounting standards
and generally accepted accounting
principles.
Accounting and financial control
policies and procedures have been
established and are monitored by the
Committee to ensure the accounts
and other records are accurate
and reliable. Any new accounting
policies are reviewed by the
Committee. Compliance with these
procedures and policies and limits
of authority delegated by the Board
to management is subject to review
by the external and internal auditors.
When considering the yearly and half
yearly financial reports, the Audit
Committee reviews the carrying
value of assets, provisions and other
accounting issues.
Questionnaires completed by
divisional management are reviewed
by the Committee half yearly.
As required by the Corporations Act
for year end financial reports, the
CEO and the chief financial officer
give a declaration to the directors that
the Company’s financial records have
been properly maintained and that
the financial reports give a true and
fair view before the Board resolves
that the directors’ declarations
accompanying the financial reports
be signed.
At each scheduled meeting of the
Committee, both external and internal
auditors report to the Committee
on the outcome of their audits and
the quality of controls throughout
Boral. As part of its agenda, the Audit
Committee meets with the external
and internal auditors in the absence of
management twice during the year.
the Chair of the Audit Committee
ordinarily reports to the full Board
after Committee Meetings. Minutes
of Meetings of the Audit Committee
are ordinarily included in the papers
for the next full Board Meeting after
each Committee Meeting.
External Auditor
Boral’s external auditor is KPMg.
the scope of the external audit and
the effectiveness, performance and
independence of the external auditor
are reviewed by the Audit Committee.
if circumstances arise where it
becomes necessary to replace the
external auditor, the Audit Committee
will formalise a process for the
selection and appointment of a new
auditor and recommend to the Board
the external auditor to be appointed
to fill the vacancy.
the Audit Committee monitors
procedures to ensure the rotation of
external audit engagement partners
every five years as required by the
Corporations Act.
the Audit Committee has approved
a process for the monitoring and
reporting of non-audit work to be
undertaken by the external auditor.
services by the external auditor
which are prohibited because they
have the potential or appear to
impair independence include the
participation in activities normally
undertaken by management, being
remunerated on a “success fee”
structure and where the external
auditor would be required to review
their work as part of the audit.
An independence declaration by the
external auditor forms part of the
directors’ Report and is set out on
page 41.
Internal Audit
the internal audit function
is outsourced with
PricewaterhouseCoopers being the
Company’s internal audit service
provider. the internal audit program
is approved by the Audit Committee
before the start of each year and the
effectiveness of the function is kept
under review.
Principle 5: Make Timely and
Balanced Disclosure
the Company complies with all
relevant disclosure laws and Asx
listing Rule requirements in Australia
and has in place mechanisms
(including Boral’s Continuous
disclosure Policy) designed to ensure
compliance with those requirements.
these mechanisms also ensure
accountability at a senior executive
level for that compliance.
35
Boral is committed to making
timely and balanced disclosure of
all material matters and to effective
communication with its shareholders
and investors so as to give them
ready access to balanced and
understandable information.
A copy of Boral’s Continuous
disclosure Policy is available on
Boral’s website.
Principle 6: Respect the Rights
of Shareholders
Communications with
Shareholders
the Company’s policy is to promote
effective communication with
shareholders and other investors so
that they understand how to assess
relevant information about Boral and
its corporate proposals.
Annual and half-yearly reports are
provided to shareholders other than
those who have requested that they
do not receive copies. shareholders
may elect to receive annual reports
electronically. While companies are
not required to send annual reports
to shareholders other than those that
have elected to receive them, Boral
gives shareholders the opportunity
to elect to receive notifications via
email when reports are available on
line or to have sent to them copies
of a new overview document being
the shareholder Review, the Annual
Review (including the sustainability
Report) or the full Annual Report.
Announcements to the market are
placed on Boral’s website after
they are released to Asx and these
announcements and financial data are
retained on the website for at least
three years. general meetings and
briefings to analysts following results
and other major announcements
are webcast.
Boral encourages shareholders to
attend and participate in all general
meetings including annual general
meetings. shareholders are entitled to
ask questions about the management
of the Company and of the auditor
as to its conduct of the audit and
preparation of its reports.
Boral Limited Annual Review 2008
36
Corporate governance
notices of Meeting for general
meetings are accompanied by
explanatory notes to provide
shareholders with information to
enable them to decide whether to
attend and how to vote upon the
business of the meeting. Full copies
of notices of Meeting and explanatory
notes are posted on Boral’s website.
if shareholders are unable to attend
general meetings, they may vote by
appointing a proxy using the form
attached to the notice of Meeting or
an online facility.
Principle 7: Recognise and
Manage Risk
Risk Identification and
Management
the managers of Boral’s businesses
are responsible for identifying and
managing risks. the Board (in the
case of financial risk as noted above,
through the Audit Committee) is
responsible for satisfying itself that
a sound system of risk oversight and
management exists and that internal
controls are effective. in particular,
the Board ensures that:
• The principal strategic, operational,
financial reporting and compliance
risks are identified.
• Systems are in place to assess,
manage, monitor and report on
these risks.
under the supervision of the Board,
management is responsible for
designing and implementing risk
management and internal control
systems to manage the Company’s
material business risks. Boral’s senior
management has reported to the
Board on the effectiveness of the
management of the material business
risks faced by Boral during the 2008
financial year.
Risk management matters are
analysed and discussed by the Board
at least annually and more frequently
if required.
in addition to maintaining appropriate
insurance and other risk management
measures, identified risks are
managed through:
Boral Limited Annual Review 2008
• Established policies and procedures
for the managing of funding, foreign
exchange and financial instruments
(including derivatives) including
the prohibition of speculative
transactions. the Board has
approved treasury policies regarding
exposures to foreign currencies,
interest rates, commodity price,
liquidity and counterparty risks
which include limits and authority
levels. Compliance with these
policies is reported to the Board
monthly and certified by treasury
management to the Audit
Committee twice yearly.
• Key business risks being identified
on a divisional basis and on
a corporate-wide basis and
reported to the directors as part
of the strategic planning process.
Management was assisted by
a specialised risk management
consultancy in assessing risks
corporate-wide during the 2007/08
financial year and this process will
provide a continuous approach to
risk management.
• Policies, standards and procedures
in relation to environmental and
health and safety matters.
• Training programs in relation
to legal and compliance issues
such as trade practices/antitrust,
intellectual property protection,
occupational health and safety and
environmental.
• Procedures requiring that significant
capital and revenue expenditure and
other contractual commitments are
approved at an appropriate level of
management or by the Board.
• Comprehensive management
guidelines setting out the standards
of behaviour expected of employees
in the conduct of the Company’s
business.
the internal audit function is
involved in risk assessment and
management and the measurement
of effectiveness. the internal and
external audit functions are separate
and independent of each other.
in addition to an overall risk
management policy, Boral has
numerous risk management
systems and policies that govern the
management of risk.
the Board has acknowledged that the
material provided to it on risks has
enabled it to review the effectiveness
of the risk management and internal
control system to manage the
Company’s material business risks.
Compliance
the Company has adopted
policies requiring compliance with
occupational health and safety,
environmental and trade practices
laws.
there are also procedures providing
employees with alternative means to
usual management communication
lines through which to raise concerns
relating to suspected illegal or
unethical conduct. the Company
acknowledges that whistleblowing
can be an appropriate means to
protect Boral and individuals and
to ensure that operations and
businesses are conducted within
the law.
there are ongoing programs for audit
of the large number of Boral operating
sites. Occupational health and safety,
environmental and other risks are
covered by these audits. Boral also
has staff to monitor and advise on
workplace health and safety and
environmental issues and in addition,
education programs provide training
and information on regulatory issues.
despite the Company’s policies and
actions to avoid occurrences which
infringe regulations, there have been
a small number of prosecutions
against subsidiary companies for
breaches of occupational health and
safety legislation.
CEO and Chief Financial Officer
Declaration
the CEO and the chief financial
officer have provided the directors
with a declaration in accordance with
section 295A of the Corporations Act
for the 2008 financial year including
confirmation that the Company’s
financial reports present a true and
fair view, in all material respects, of
the Company’s financial condition
and operational results. the Board
confirms that it has received
assurance from the CEO and the
chief financial officer that the above
statement was founded on a sound
system of risk management and
internal control, and that such system
is operating effectively in all material
respects in relation to financial
reporting risks.
Boral’s share trading Policy, which
is referred to under the subheading
“dealings in Boral shares” under
Principal 3, prohibits executives
entering into transactions or
arrangements which limit the
economic risk of participating in
unvested entitlements under the
equity based remuneration schemes,
namely the Boral senior Executive
Option Plan and the Boral senior
Executive share Performance Plan.
Remuneration of Non-executive
Directors
the remuneration of the non-
executive directors is fixed by way
of cash, superanuation contributions
or salary sacrifice in equity through
the non-Executive directors share
Plan and they do not receive any
options, bonus payments or other
performance related incentives. non-
executive directors are not provided
with retirement benefits other than
superanuation.
Further information relating to
the remuneration of the non-
executive directors is set out in the
Remuneration Report on pages 44,
45 and 47. this information includes
a summary of the terms of the non-
Executive directors’ share Plan.
Remuneration Report
A detailed Remuneration Report is
set out in clause (19) of the directors’
Report on pages 42 to 49. As
required by the Corporations Act,
a resolution that the Remuneration
Report be adopted will be put to the
vote at the Annual general Meeting,
however, the vote will be advisory
only and will not bind the directors or
the Company.
Balance sheet
BORAl liMitEd And COntROllEd EntitiEs
Principle 8: Remunerate Fairly
and Responsibly
Remuneration Committee
the Board has a Remuneration
Committee which is comprised of
four independent non-executive
directors, namely John Cloney
(Chairman), Brian Clark, Bob Every
and Ken Moss. the Committee met
on two occasions during the 2008
financial year, and attendance by
members at those meetings is shown
in paragraph (13) of the directors
Report on page 39.
the Remuneration Committee has
a formal Charter which sets out its
role and responsibilities, composition
structure and membership
requirements. A copy of this Charter
is available on Boral’s website.
the Committee makes
recommendations to the full Board on
remuneration arrangements for the
CEO and senior executives and as
appropriate, on other aspects arising
from its functions.
Part of the role of the Remuneration
Committee is to advise the Board
on the remuneration policies and
practices for Boral generally and the
remuneration arrangements for senior
executives.
Boral’s remuneration policy and
practices are designed to attract,
motivate and retain high quality
people. the policy is built around
principles that:
• Executive rewards be competitive
in the markets in which Boral
operates.
• Executive remuneration has an
appropriate balance of fixed and
variable reward.
• Remuneration be linked to Boral’s
performance and the creation of
shareholder value.
• Variable remuneration for executives
has both short and long-term
components.
• A significant proportion of executive
reward be dependent upon
performance assessed against key
business measures, both financial
and non-financial.
these principles ensure that the level
and composition of remuneration is
sufficient and reasonable and that
its relationship to corporate and
individual performance is defined.
37
Boral Limited Annual Review 2008
38
directors’ Report
the directors of Boral limited
(“the Company”) report on the
consolidated entity, being the
Company and its controlled entities
(“Boral”), for the financial year ended
30 June 2008:
(1) Review of Operations
the directors review the operations
during the year of Boral and the
results of those operations as stated
in the Chairman’s Review and
Managing director’s Review on pages
6 to 11 of the Annual Review.
(2) State of Affairs
there were no significant changes in
Boral’s state of affairs during the year
other than:
• the acquisition of the assets
of two construction materials
businesses in Oklahoma, usA,
schwarz Readymix, a ready mixed
concrete and sand business, and
the davis Arbuckle Materials quarry,
for prices totalling $99.8 million in
August 2007;
• the off-market buy-back of
20,019,889 of the Company’s
shares for the total consideration of
$114.2 million ($5.65 per share) on
7 April 2008; and
• significant items having a net loss
of $3.8 million being the write-
down of $31.9 million of goodwill
applicable to the quarry and
concrete business in thailand, less
the income tax benefit of $28.1
million taken to account following
the resolution with the Australian
taxation Office of matters relating
to the utilisation of tax losses
and capital gains arising from the
demerger in 2000 and progress on
other outstanding taxation matters.
(3) Principal Activities
and Changes
Boral’s principal activities are the
manufacture and supply of building
and construction materials in
Australia, the usA and Asia. there
were no significant changes in the
nature of those activities during the
year.
(4) Events After End
of Financial Year
there are no matters or
circumstances that have arisen
since the end of the year that
have significantly affected, or may
significantly affect:
Boral Limited Annual Review 2008
(a) Boral’s operations in future
financial years; or
(b) the results of those operations in
future financial years; or
(c) Boral’s state of affairs in future
financial years.
(5) Future Developments
and Results
Other than matters referred to under
the heading “Outlook for 2008/09”
in the Managing director’s Review on
page 10 of the Annual Review, the
directors have no reference to make
to likely developments in Boral’s
operations in future financial years
and the expected results of those
operations.
(6) Environmental Performance
details of Boral’s performance in
relation to environmental regulation
are set out under Environment on
pages s18 to s23 of the sustainability
Report which is a supplement to the
Annual Review.
(7) Other Information
Other than information in the Annual
Review, there is no information that
members of the Company would
reasonably require to make an
informed assessment of:
(a) the operations of Boral;
(b) the financial position of Boral; and
(c) Boral’s business strategies and
its prospects for future financial
years.
(8) Dividends Paid or Declared
dividends paid to members during
the year were:
total dividend
$ million
the final dividend of
17 cents per ordinary
share (fully franked
at the 30% corporate
tax rate) for the
year ended 30 June
2007 was paid on 18
september 2007
the interim dividend of
17 cents per ordinary
share (fully franked at
the 30% corporate tax
rate) for the year was
paid on 19 March 2008
102.0
102.5
the final dividend of 17 cents per
ordinary share (fully franked at the
30% corporate tax rate) for the year
has been declared by the directors and
will be paid on 18 september 2008.
(9) Names of Directors
the names of persons who have
been directors of the Company during
or since the end of the year are:
Elizabeth A Alexander Kenneth J Moss
J Brian Clark
E John Cloney
Robert l Every
Richard A longes
Rodney t Pearse
Mark R Rayner
J Roland Williams
All of those persons, other than
dr Every and Mr Rayner, have been
directors at all times during and since
the end of the year. dr Every was
appointed a director on 7 september
2007 and has been a director at all
times since that date. Mr Rayner
was a director from 1 July 2007 to
29 October 2007, on which date he
retired from the Board of directors.
(10) Options
details of options that are granted
over unissued shares of the
Company, options that lapsed during
the year and shares of the Company
that were issued during the year as a
result of the exercise of options are
set out on page 39.
since the end of the year, a further
21,692 shares of the Company have
been issued at the price of $5.57 each
as a result of the exercise of options in
tranche (xiii).
tranche (xvii) was issued during the
year pursuant to the Boral senior
Executive Option Plan. the number
of options in that tranche granted to
each of Mr R t Pearse, the Managing
director and Chief Executive Officer,
and the executives named in the
Remuneration Report in clause (19)
as part of their emoluments for the
year and certain other details of the
terms of the options are set out in
the Remuneration Report on page 49
of the Annual Review. the grant of
options to Mr Pearse was approved
by shareholders at the Company’s
Annual general Meeting held on 21
October 2004.
Each option granted over unissued
shares of the Company entitles the
holder to subscribe for one fully paid
share in the capital of the Company.
Optionholders have no rights under
any options to participate in any share
issue or interest issue of any body
corporate other than the Company.
no unissued shares and interests of
the Company or any controlled entity
are under option other than as set out
in this clause.
39
(10) Options (continued)
Balance sheet
BORAl liMitEd And COntROllEd EntitiEs
tranche
grant date
Expiry date
Exercise
price
Balance at
beginning of
year
Options issued
during the year
Options lapsed
during the year
shares issued
during the year
as a result of
exercise of
options
Options at end of year
number
number
number
number
issued
vested
(xii)
(xiii)
(xiv)
(xv)
(xvi)
04/11/2002 04/11/2009
$4.12
215,800
29/10/2003 29/10/2010
$5.57 2,876,808
29/10/2004 29/10/2011
$6.60
2,053,100
31/10/2005 31/10/2012
$7.70 3,305,500
06/11/2006 06/11/2013
$7.32
4,717,900
–
–
–
–
–
103,400
110,500
137,000
(xvii)
06/11/2007 06/11/2014
$6.83
–
5,938,700
–
–
72,800
143,000
143,000
54,230
208,150
2,614,428
733,748
–
–
–
–
1,949,700
3,195,000
4,580,900
5,938,700
–
–
–
–
the above mentioned options were held by 177 persons.
13,169,108
5,938,700
405,130
280,950 18,421,728
876,748
(11) Indemnities and Insurance for
Officers and Auditors
during or since the end of the year,
Boral has not given any indemnity
to a current or former officer or
auditor against a liability or made any
agreement under which an officer or
auditor may be given any indemnity
of the kind covered by sub-section
199A(2) or (3) of the Corporations
Act 2001.
during the year, Boral paid premiums
in respect of directors’ and Officers’
liability and legal Expenses
insurance contracts for the year
ended 30 June 2008 and since the
end of the year, Boral has paid, or
agreed to pay, premiums in respect of
such contracts for the year ending 30
June 2009. the insurance contracts
insure against certain liability (subject
to exclusions) persons who are or
have been directors or officers of
the Company and controlled entities.
A condition of the contracts is that
the nature of the liability indemnified
and the premium payable not be
disclosed.
(12) Directors’ Qualifications,
Experience and Special
Responsibilities and Directorships
of Other Listed Companies in the
Last Three Financial Years
Each director’s qualifications,
experience and special responsibilities
are set out on page 31 of the Annual
Review.
details for each director of all
directorships of other listed
companies held at any time in the
three years before the end of the
year and the period for which such
directorships has been held are:
E A Alexander
Amcor limited from 1994 to October
2005
Csl limited from 1991 (current)
dExus Funds Management limited
(the responsible entity for dExus
Property group which was formerly
named dB RREEF trust) from
January 2005 (current)
J B Clark
AMP limited from January 2008
(current)
E J Cloney
Patrick Corporation limited from
2003 to May 2006
QBE insurance group limited from
1981 (current)
R L Every
iluka Resources limited from March
2004 (current)
sims group limited from October
2005 to november 2007
Wesfarmers limited from February
2006 (current)
Metcash trading limited from 2000
to January 2006
Metcash limited from April 2005
(current)
viridis investment Management
limited from september 2005 to
August 2007
K J Moss
Adsteam Marine limited from 2001
to March 2007
Centennial Coal limited from 2000
(current)
gPt RE limited from June 2005
(current)
Macquarie Capital Alliance group
(being Macquarie Capital Alliance
limited, Macquarie Capital Alliance
Management limited and
Macquarie Capital
Alliance Bermuda limited) from
March 2005 (current)
R A Longes
Austbrokers Holdings limited from
november 2005 (current)
lend lease Corporation limited from
1986 to november 2005
R T Pearse
nil
J R Williams
Origin Energy limited from
2000 (current)
(13) Meetings of Directors
the number of Meetings of the Board of directors and each Board Committee
held during the year and each director’s attendance at those Meetings was:
Board of directors
Audit Committee
Remuneration
Committee
Meetings
held while a
director
Meetings
attended
Meetings
held while a
member
Meetings
attended
Meetings
held while
a member
Meetings
attended
E A Alexander
J B Clark
E J Cloney
R l Every
R A longes
K J Moss
R t Pearse
J R Williams
11
11
11
8
11
11
11
11
9
10
11
8
10
11
11
11
5
–
–
–
5
–
–
5
5
–
–
–
5
–
–
5
–
2
2
1
–
2
–
–
–
2
2
nil
–
2
–
–
Boral Limited Annual Review 2008
40
directors’ Report
(13) Meetings of Directors (continued)
Mr Pearse, the Managing director, is not a member of the Audit and Remuneration Committees but attended all of the
Meetings held by those Committees.
(14) Company Secretary
the qualifications and experience of the Company secretary, Michael B scobie, are set out on page 28 of the Annual
Review.
(15) Directors’ Shareholdings
details of each director’s interests in the shares and other securities of the Company are:
E A Alexander
J B Clark
E J Cloney
R l Every
R A longes
K J Moss
R t Pearse
J R Williams
shares
16,374
56,079
14,529
13,004
13,379
31,000
4,101,178
48,522
non-Executive directors’ share Plana
Options and share Acquisition Rights (sARs)
20,924
2,225
24,701
1,631
6,237
21,908
–
20,214
–
–
–
–
–
–
b
–
the shares are held in the name of the director except in the case of:
• Dr J B Clark, 37,931 shares are held by UBS Wealth Management Australia Nominees Pty Limited –
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