Supplier update
CSR sees peak in house building
Demand for CSR's Gyprock product will continue despite peak in residential housing
Demand for CSR's Gyprock product will continue despite peak in residential housing
 
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Adelaide Brighton confident about infrastructure and MTD invests in robotic mowers
HNN Sources
CSR managing director Rob Sindel believes residential construction markets have peaked; Adelaide Brighton says the infrastructure spending pipeline remains strong; MTD Products is making a bigger push into the robotic lawnmower business; and James Hardie posts a rise in net profit.
Housing has "peaked", says CSR boss

In an interview with the Financial Review, the managing director of CSR says residential construction markets appear to have peaked. This led to an almost 12% fall in the company's shares, as investors concluded the record profits generated by its core building products division won't be repeated.

But Rob Sindel, who has been running the company since early 2011, said there would still be solid demand for Gyprock plasterboard, tiles, bricks, insulation and walling systems on the eastern seaboard over the next year. He said the company is protected from a downturn in the high-rise apartment market because that only represents 12% of its customer base.

Mr Sindel predicted a smooth landing as the Australian housing market adjusts from boom times. He said that while the high-rise apartment market would continue to slow down faster than the detached housing and low-rise townhouse type segment, only a sharp rise in interest rates for borrowers would trigger more serious issues for the broader market. He told the Financial Review:
I just can't see that happening. Multi-residential is the one that will come off a bit quicker.

It was important for housing markets observers to look more closely at the health of different types of segments in Australia. He said:
It's actually a whole series of sub-markets.

Mr Sindel said all of the individual businesses in CSR's building products division increased their profits over the past 12 months as they capitalised on the strength of the housing sector on Australia's east coast to deliver a record result.

The building products arm lifted earnings before interest and tax by 21% to $202.8 million for the 12 months ended March 31, 2017. Profit margins in building products reached 12.9%, compared with 7.9% five years ago.

However investors were concerned the outlook had now dimmed. Mr Sindel said the market had now likely peaked from the record levels of activity that had been happening, although there was still solid demand for construction products particularly in Sydney and Melbourne, with Western Australia still weak.

He pointed to the strong run-up in CSR shares in the few weeks before the results as perhaps one of the reasons for the sell-off. He said:
The market will decide what the price is.

CSR's overall net profit was up 25% to $177.9 million for the year ending March 31, 2017. Total revenues were up 7% to $2.47 billion.
Infrastructure spending strong: Adelaide Brighton

As Australia's biggest cement supplier, Adelaide Brighton, believes there are at least three years of strong demand ahead for its products on the east coast, even if house prices start softening.

Chief executive Martin Brydon said that, although housing approval figures were slowing from high levels, there was still a strong pipeline of orders in residential construction for up to two years, and then any slack would be picked up by rising levels of infrastructure spending on roads and other big projects. He told the Financial Review:
Certainly the residential pipeline has got a year or two to run. We expect to be pretty busy in all of our products.

Approximately one third of Adelaide Brighton's revenues from supplying the residential construction market. Chairman, Les Hosking, said even if residential housing prices did begin to decrease, it would have little impact on the construction market in the short term.
It's not immediate. There are plenty of housing sites being developed now where construction hasn't even started.

He pointed to the Badgerys Creek region in outer Sydney as a particular hot spot, where demand would be very robust in new housing construction. The federal government will oversee the building of a second airport for Sydney there.

Demand for cement and other products is also very strong in Victoria, and Mr Brydon said while some parts of the Australian economy were going through difficult times, such as retail, the economy overall was able to navigate through the shifts fairly well.

Adelaide Brighton expects profits in the first half of calendar 2017 to be below the same time last year, because of one-off restructuring costs and the relocation of a North Melbourne plant, even though sales volumes will be higher.

But it expects profits in the second half of 2017 will be stronger than the same time last year, despite electricity costs likely being $8 million higher than last year.
MTD Products gets into robotic mowers

US outdoor power equipment manufacturer, MTD Products has entered into a merger agreement with F. Robotics Acquisitions, which makes a product called Robomow, a line of environmentally friendly, robotic residential lawn mowers sold mainly in Europe.

Terms of the deal were not disclosed. It is expected to close by July 2, pending governmental and other approvals.

The transaction will "combine Robomow's industry-leading technology and award-winning robotic lawn mowers with MTD's broader outdoor power equipment portfolio and extensive global network of dealers," MTD said in a statement. CEO Rob Moll said:
Both MTD and Robomow see tremendous opportunities to grow our brands through this merger of our products and talents.

He said MTD plans to market Robomow technology under the company's Cub Cadet and WOLF-Garten brands.

Mr Moll noted that technology "has already taken hold in Europe, and the market is growing globally at a rate of 15% or more annually."

If the merger is completed, F. Robotics' operations would remain headquartered in Pardesiya, Israel. Its existing management team would continue to lead the company with support from MTD's European, North American and Asia-Pacific divisions. Udi Peless, CEO of F. Robotics, said:
For the last 22 years we have been focused on developing innovative technologies and leading robotic mowing products. We are excited to see this investment reach its full potential in the market via MTD's leading brands and distribution.

MTD already markets the Cub Cadet RG3, a robotic mower for golf greens. In 2015, it bought two companies that strengthened its technological capabilities: CORE Outdoor Power, which MTD says offers motor technology that "provides greater torque and efficiency than traditional electric motors in cordless battery applications", and Precise Path Robotics, which added the RG3 to MTD's offerings.

Related:
MTD Products makes acquisitions - HNN
James Hardie posts a rise in net profit

Building materials supplier James Hardie has posted a 13% rise in full- year profit largely due to strong housing construction in its core US market.

The company's bottom-line profits were $371.8 million in the year to March 31, as sales rose 11% to $2.57 billion.

Sales of fibre cement - the group's flagship product - were up 12% in the US. Housing market activity in Australia and New Zealand underpinned a 22% rise in earnings from its fibre cement business outside of the US, including Asia and the Middle East. In reference to a drop in sales in the Philippines due to imports from competitors, chief executive Louis Gries said:
Asia Pacific had a good year - the only bump in the road was the Philippines.

Its Australian operations were strong, with improvements in volume, price, costs and the efficiency of its new cement plant in Queensland, he said. The performance of the Australian business is expected to be steady in the 2017-18 financial year, Mr Gries added.

Modest growth in the US housing market is also expected to continue into the current financial year.

A $51.74 million decrease in the value of James Hardie's estimated asbestos liabilities also boosted the company's bottom line. Claims for mesothelioma, a cancer caused by asbestos exposure, were down 6% to 373 in 2016/17. There were two large mesothelioma settlements worth more than $1.34 million in the year.

Total claims for all asbestos-related compensation fell 3% from the prior year to 557, and the average settlement dropped 10% in value. Large claim settlements amounted to $4.4 million. This is down from $13.3 million in the prior year and significantly lower than the company's forecast of $24 million in claims.
HNN Sources


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