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Yuen Ling Ng, Boral Limited - Group President Ventures & CFO [29]
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I think we may open up questions for people on the phone, please.
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Operator [30]
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(Operator Instructions) Your first question from the phone today comes from the line of Brook Campbell-Crawford from JPMorgan.
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Brook Campbell-Crawford, JP Morgan Chase & Co, Research Division - Analyst [31]
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You noted possible volumes were soft in the fourth quarter. Could you provide a sense of how you're significant with time loss in Australia plasterboard in 4Q?
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Michael Kane, Boral Limited - CEO, MD & Director [32]
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So I think simply, plasterboard is an interior-aligning product that goes -- one of the last things that's put in, in high-rise buildings and homes. And so in terms of the lead lag cycle in the construction process, we actually saw a result for full year 2019 that was minimally impacted by the decline, the 15% decline we saw in housing starts. But we fully now expect that will flow through and the way the year ended was the classic indication that it was starting to feed through into our space in plasterboard. And so we expect that to continue in 2020. And frankly, if there's another 15% decline in housing starts in 2020, that will accelerate that.
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Brook Campbell-Crawford, JP Morgan Chase & Co, Research Division - Analyst [33]
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Okay. And you noted there were 2 higher-margin site service projects in North America Fly Ash business falling off. What was the impact to Fly Ash margins due to those 2 projects?
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Yuen Ling Ng, Boral Limited - Group President Ventures & CFO [34]
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I think the Barry and Gaston, that was a project where there was a plant constructed so that we can actually then get the marketing contract to broker the ash. So the margins achieved on those 2 projects during construction was around 28% EBITDA margin. And as you know, our average Fly Ash margin across both the brokering of ash as well as site services averaged around 24%, 25%. So with that coming off, that had an impact, so we showed a slight reduction in the overall Fly Ash EBITDA margin this year.
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Brook Campbell-Crawford, JP Morgan Chase & Co, Research Division - Analyst [35]
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Okay. That's great. And one last one, it might be in the releases as well. But what's the return on the pro forma Asia plasterboard JV on a pro forma '19 basis?
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Yuen Ling Ng, Boral Limited - Group President Ventures & CFO [36]
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We haven't given the ROFE on a pro forma basis. I think all the numbers and all the assumptions are in the presentation, and I think you can easily construct that. But I'm more than happy to go through that today at our 3:30 call. As we talked about the joint venture itself, it is a little bit more complicated because obviously, we equity account the current joint venture. The extent joint venture will acquire those Knauf assets and we've spoken about the EBITDA multiple and the China business at just over 10x, which obviously Boral shares only 50-50 of that investment. We've given the pro forma EBITDA earnings as well as the EBIT earnings, so I think all the numbers are there but more than happy to take the work -- work through the math this afternoon on our call.
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Operator [37]
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Your next question comes from the line of Daniel Kang from Citigroup.
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Daniel Kang, Citigroup Inc, Research Division - VP & Head of Chemicals and Packaging Equity Research [38]
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Just a quick question for David on Fly Ash. You've indicated that your target run rate for FY '21 by the end of that is 8.6 million tons, and that's quite a significant uplift from the 7 million tons or thereabouts slightly higher in FY '20. Just what gives you the confidence that this additional 1.6 million tons can be reached? Can you provide some color and breakdown of that additional 1.6 million tons, what do you expect from imports, new contracts and the like?
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David Mariner, Boral Limited - President & CEO of Boral Industries Inc [39]
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So I can't necessarily break it down into their individual buckets. But what I can say is that we have about a 7 point, let's call it, strategic streams that were running through. And we described those last year at our visit in the U.S. and they'll be -- we'll provide an update on that this year. It ranges from storage to new contracts to imports to blending to technology advancements to the harvesting of the reclamation work that we've done in Montour, Pennsylvania. And all of those combined, I can't say for certain which one is going to be what volume. But all of those are moving forward from a progressing standpoint in which ones
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We'll let you know as they hit. We've got.
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that we're going to have some announcements in the future around one or multiple of those. I just don't have that timing right now. And until I have that, all I can really say is that when I add up all of the potential of all of those different streams, it's well above the target that we've provided. But we've obviously factored in some timing and some, I don't want to call it risk, but some conservatism into what we've put out in the market.
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Daniel Kang, Citigroup Inc, Research Division - VP & Head of Chemicals and Packaging Equity Research [40]
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And in terms of the margin shortfall in FY '19, do you expect a recovery back to 24%, 25% levels in FY '20?
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David Mariner, Boral Limited - President & CEO of Boral Industries Inc [41]
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Broadly, we hope to return to the mid-20s.
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Daniel Kang, Citigroup Inc, Research Division - VP & Head of Chemicals and Packaging Equity Research [42]
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Mid-20s. In FY '20 or in the medium term?
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David Mariner, Boral Limited - President & CEO of Boral Industries Inc [43]
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In both.
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Daniel Kang, Citigroup Inc, Research Division - VP & Head of Chemicals and Packaging Equity Research [44]
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Okay. Switching to Australia. You booked -- I think Wayne you mentioned about further savings from organizational effectiveness program of about $40 million to $50 million. Just wondering if this is a net off inflation benefit? Or to put another way, what's the annual cost inflation that you're expecting for FY '20.
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Wayne Manners, Boral Limited - Executive General Manager for Western Australia [45]
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So the cost -- so I'll answer that question. There's -- the net interest in the direct cost saving that we're looking to around that, I think, we indicated $40 million to $50 million or $55 million of direct savings. So again, we expect that to be a direct savings with a lot of the organizational effectiveness. We only partly delivered that in FY '19. The rest is to come. And we expect it mostly completed in FY '20, and other focuses on rightsizing the cost savings that we expect to deliver -- we'll deliver around that $45 million to $55 million mark into FY '20 as a direct saving.
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Michael Kane, Boral Limited - CEO, MD & Director [46]
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The cost inflation?
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Wayne Manners, Boral Limited - Executive General Manager for Western Australia [47]
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Cost inflation, we still think it will be around the 2% mark, 1.8% to 2%. We're expecting -- we're looking at salaries and wages to continue along the normal stream around the 2.5% mark, and then -- but items such as electricity and coal, we expect to decline. Diesel are largely steady, so yes, so but overall around the 2% mark.
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Daniel Kang, Citigroup Inc, Research Division - VP & Head of Chemicals and Packaging Equity Research [48]
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And Wayne, do you expect to try to push through some price hikes to recover the cost inflation?
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Wayne Manners, Boral Limited - Executive General Manager for Western Australia [49]
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So we previously committed to 2 price reviews per annum and we're certainly doing that. If we add some context to FY '19, a 6% decline in concrete volume, still achieving over a 2% price increase, is a reflection of all the good work done on our customer excellence programs. So one thing we learned from that is very, very strategic and targeted price increases get us better traction. So we are -- we have done a price review. That is being communicated out to the different segments now. But in this case, for this year, it is very strategic and very targeted based on a whole lot more information, a training development that we've done to recover the best we can.
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Daniel Kang, Citigroup Inc, Research Division - VP & Head of Chemicals and Packaging Equity Research [50]
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And just the last one, may be for Ros or Frédéric. In terms of USG Boral, post the deal, when do you expect your ROIC to return to your cost of capital? Is it within the 4 years of your synergies delivery?
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Yuen Ling Ng, Boral Limited - Group President Ventures & CFO [51]
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So with the cost of capital, as were reported at the -- in our results, we're sitting at around 8% on the current joint venture, underlying. Yes, like we said earlier to your previous question, we can kind of work out the math in acquiring bringing the Knauf business into the joint venture. They are, that you have heard, profitable business in China but we are essentially buying the assets that they've placed in Southeast Asia. So it's going to take a little bit of time to get the combined earnings from the bigger footprint in Asia. We've got the $30 million that we've talked about in terms of synergy targets. That's going to be in year 4. So I think even without Australia in there, I think we'll continue to see the ROFE improvement underlying basis and get to cost of capital in 4 years and obviously, if we include Australia, we'll get their a lot sooner.
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Operator [52]
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The next question comes from the line of Keith Chau from MST Marquee.
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Keith Chau, MST Marquee - Building Materials & Packaging Analyst [53]
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May be Wayne, can I just follow up on the concrete price discussion that we've just had. Obviously announcing price increases is one thing but realizing them is certainly another particularly in the competitive dynamic that we're seeing in Australia at the moment. So I'm wondering if you can just outline within the key states where concrete prices are going. Queensland looks like it's obviously tough given the capacity that's being added and New South Wales coming off the peak from a demand perspective. So can you just characterize what you're seeing in the market at the moment across all of those major states, please?
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Wayne Manners, Boral Limited - Executive General Manager for Western Australia [54]
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So I won't go through state by state, but -- and again a lot of it is about -- if you look across the detached and multiresidential coming down pretty much in every state, then nonresidential going up in some states and not others, it really is a horses for courses. We're seeing nonresidential improve in both New South Wales and Victoria. Some roads, highways and those sort of projects, particularly in Victoria. And so again, it's very targeted but nonresidential improving in New South Wales and Victoria. Our placing business demand in gas around the commercial being nonresidential is performing strongly in FY '20. So it really is a mixed bag. And again, our objective is our price increases to more than offset the cost of inflation, and that's still our target.
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Keith Chau, MST Marquee - Building Materials & Packaging Analyst [55]
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Okay. So I mean, with that being the target, I guess factoring in the competitive dynamic and looking everyone's going to have different expectations of volumes for next year. But how realistic is it to actually be able to achieve the weighted average price growth across the entire portfolio given the macro backdrop at the moment?
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Wayne Manners, Boral Limited - Executive General Manager for Western Australia [56]
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Well, again, I think if you reflect back on FY '19, where we had a 6% decline in concrete volumes but we still achieved 2.2% of price increase on a like-for-like basis in concrete, I think what it reflects is that our customer excellence program is more than just about announcing a nationwide price increase. It's about having the dialogue, the strategy, the information, the training and everything else to deliver the best possible outcomes you can on a product-by-product basis and a client-by-client basis, and that's what we're doing.
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Keith Chau, MST Marquee - Building Materials & Packaging Analyst [57]
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Okay. And perhaps just one more on the cement market. So your volumes are going to be external market. I think its competition is higher in concrete, it's probably even more so in cement. So can you characterize the outlook for pricing in the cement market, please, across your weighted average exposure?
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Wayne Manners, Boral Limited - Executive General Manager for Western Australia [58]
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We saw in FY '19 the -- effectively, on a like-for-like basis, cement price increase by about 1%. We're really working through that at the moment. Again, it's market by market, Southeast Queensland is different to other markets. So yes, it's the same as the other story. We're expecting to put out on a targeted basis around cement pricing depending on the differences in the market.
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Operator [59]
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Your next question comes on the line of Rohan Koreman-Smit from Goldman Sachs.
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Rohan Koreman-Smit, Goldman Sachs Group Inc., Research Division - Industrial Analyst [60]
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Just a couple of quick questions. Sorry to really get the point on concrete. But it looked like the second half was probably where you had most of the volume decline, and pricing was particularly weak. Can you just maybe give us a bit more color on, I guess, how the second half in particular played out? And then also on Australia, just some color on the margins going forward particularly given that, I guess, New South Wales is falling more than the national average and that's probably where you have your strongest margins. That does feel like there's a bit of a shift away from you, particularly as you were talking to your increased non-res and infrastructure and the effect where the margins are strong in the business, in my understanding. And then last question is more about gearing. I know you talked to gearing below the 2.5x post the acquisition, but you're putting a bit at the end of the new JV. Do you have some color on what the kind of look-through gearing will be for the entire business?
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Michael Kane, Boral Limited - CEO, MD & Director [61]
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Okay, so I'll answer the first question which was around first half versus second half before I understand that correctly in concrete volumes. What we saw in the second half was impact on several concrete projects being delayed, but there was still a skew in the second half of 51% to 48% on a year-on-year basis. So concrete volumes were still strong, but we did see some delays in projects which we've talked about quite probably before. In terms of -- yes, no doubt. I think as we've articulated, the concrete volumes in New South Wales we expect in FY '20 to decline by 5% with detached and multiresidential coming off as well. So there's no doubt margins in New South Wales and across the business are going to be a challenge and that's where offsetting in nonresidential through demand in gas and marine picked up in projects in Victoria but also our self-help projects really need to come into play in FY '20. I'll let Ros answer the...
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Yuen Ling Ng, Boral Limited - Group President Ventures & CFO [62]
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So with the joint venture, the Asian joint venture, as we talked through the slides, they're acquiring for $532 million. We get proceeds of $50 million in the joint venture, so it's $482 million. We talked about that the joint venture in itself will acquire external debt of $200 million, and the balance of around $270 million will be funded through equity contributions from both 50% from bond, 50% from Knauf. So then if we concentrate just on the joint venture, you'll see that from our results last year as well as this year in FY '19, we actually have a net cash position in the joint venture. And roughly, we've been holding on average around $60 million up to $80 million of net cash in joint venture. So when you think about the joint venture acquiring $200 million of external debt, it's already got the $60 million, $70 million of cash. It's a very modest net debt that we'll be putting in the joint venture. So from a net debt-to-EBITDA at the joint venture level, it's less than 1. So it's not going to have a big impact on a look through.
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Operator [63]
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Your next question comes from the line of Brook Campbell-Crawford from JPMorgan.
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Brook Campbell-Crawford, JP Morgan Chase & Co, Research Division - Analyst [64]
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Just a follow-up from me on the North America Fly Ash business. For David, what proportion of your Fly Ash contracts pricing resets during FY '19?
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David Mariner, Boral Limited - President & CEO of Boral Industries Inc [65]
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I think the easiest way is most have pricing resets only because they're tied to revenues. So we -- those contracts, which is the majority of them that are tried -- tied to a revenue share of -- that moves consistently. Beyond that, we're continuously either extending contracts or working with the utilities on a case-by-case basis, and I don't believe we disclosed that figure. So it's an ongoing effort in terms of extending current contracts, getting new contracts and therefore, all I can say is that it's what we do all the time and I don't believe we disclosed that.
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Brook Campbell-Crawford, JP Morgan Chase & Co, Research Division - Analyst [66]
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No, that's fair. I guess what I'm trying to get at here is double-digit price increases, synergies coming through but margins looks pretty down, pretty meaningfully in the second half, putting these site services to one side. So is the issue here repricing these royalties, or is there a bigger issue here that we should be focused on?
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David Mariner, Boral Limited - President & CEO of Boral Industries Inc [67]
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There's cost inflation that comes through the business. If you look at the MD&A, revenue is up about 7%, pricing is up 11%, volume is down 3%. So you can do that rough math and you can see that. We held our own in terms of total profitability on the nonsite-specific work, and that was largely due to revenue being above what it has been in the past as well as the volume decline of roughly 3% year-on-year.
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Operator [68]
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(Operator Instructions) There are no further questions at this time. I'd now like to hand the conference back to today's presenters. Please continue.
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Michael Kane, Boral Limited - CEO, MD & Director [69]
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Well, thank you very much for those on the line and those in the audience for your patience, and I realized it's a lot of dry run through a lot of twisting numbers. But we're confident that the outlook that we put is the best realistic focus on what's happening in the market today, and we think that we've got a portfolio of businesses that can weather this and come out stronger on the other end. Thank you.