The following is a press release from S&P Global Ratings:
MELBOURNE (S&P Global Ratings) Feb. 12, 2020--S&P Global Ratings today said that Boral Ltd.'s (BBB/Stable/--) lower earnings guidance for the year ending June 30, 2020, reduces the rating buffer in the event of further underperformance.
We view the most recent earnings downgrade as part of a series of earnings downgrades since the company's Headwaters acquisition in mid-2017. In our opinion, weaker-than-expected earnings have progressively eroded Boral's rating headroom at the 'BBB' rating level. To this end, we will closely monitor the effectiveness of Boral's strategy, including initiatives aimed at integrating acquisitions and raising the company's underlying profitability. We note the retirement of Boral's CEO in August 2020.
Boral's commitment to take necessary actions to preserve its financial health will continue to underpin the strong investment-grade rating. The company has reactivated its dividend reinvestment plan, which is fully underwritten for the interim and full year. Boral will also continue to pursue opportunities to divest noncore assets. In our opinion, these actions, combined with broader initiatives to improve operating performance, should enable the company to maintain funds from operations to debt above our downgrade threshold of 30%.
Boral expects reduced earnings for fiscal 2020 across all its core divisions: Boral Australia, Boral North America, and USG Boral. The company expects its net profit after tax to fall in a range of A$320 million to A$340 million for fiscal 2020. In our view, this equates to a lower EBITDA of between 5% and 10%, compared with A$1,005 million in fiscal 2019 (adjusted down by US$18.8 million for fiscal 2019 due to financial misreporting in Boral's North American window manufacturing business).
The USG Boral Knauf transaction will be a key rating consideration. Boral will require US$335 million in funding to complete the acquisition if it proceeds in its current form. The transaction has still not received final regulatory approval. We expect funding to be supplemented by net proceeds of about A$82 million from the recently announced sale of Boral's Western Australia-based Midland Brick business.
This report does not constitute a rating action.
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