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Boral Announces Full Year Profit of $362 Million

Boral Ltd (Sydney, Australia) has announced a profit after tax (PAT) of A$362 million for the year ended 30 June 2006, a 2% decrease on the A-IFRS 1 restated net PAT for the year ended 30 June 2005. Earnings per share for the year was 61.7 cents.

A fully franked final dividend of 17.0 cents per share has been maintained, which will be paid on 18 September 2006. Boral’s CEO and Managing Director, Rod Pearse, said that whilst Boral’s full year profit result reflected a higher cost environment and the impacts of an Australian housing downturn, favourable pricing outcomes, operational cost savings, a very strong US result together with the benefits of growth initiatives had contributed to a solid result.

“Despite continued softening in Australian dwellings and higher energy and fuel-related costs across the group, Boral’s operating performance in 2005/06 was solid," he said. "The full year profit benefited from effective margin management and growth benefits but was adversely impacted by $15 million of one-off commissioning/production costs associated with the Waurn Ponds cement and Galong lime kilns.

“In Australia, Boral’s construction materials businesses benefited from stronger non-dwelling activity and major projects, however, Boral’s building products businesses continued to experience the negative impacts of the cyclical downturn in Australian dwellings (particularly in New South Wales where detached dwelling approvals have reached a 30-year low).

“During the year, Boral’s offshore EBITDA earnings lifted by $44 million or 22% to 30% of Boral’s total earnings, reflecting a record result from the USA due to strong price and cost management, favourable market conditions and recent growth activities. Earnings from Asia increased but underlying results were weaker reflecting difficult conditions in some plasterboard markets and fuel-related margin contraction in construction materials."

During the year ended 30 June 2006, Boral announced around A$320 million of new capital projects, which is in addition to some A$380 million of previously announced growth projects which are yet to benefit Boral’s earnings.

Mr Pearse said: “Across Boral’s portfolio we are focused on delivering a Perform & Grow strategy. We are seeing the benefits of growth progressively flowing through to Boral’s results. During the year we made progress on several large growth capital projects, including Plasterboard in Queensland, Bricks in Indiana, Clay and Concrete Roof Tiles in California and Florida, and Plasterboard in Korea and Vietnam. Whilst the benefits from these projects will take time to flow through, we expect to see enhanced results from 2006/07 from recently commissioned projects including Waurn Ponds Cement kiln, Union City (USA) Brick plant, Clay Tiles in Trinidad, Midland Brick’s kiln #11 and our Engineered Flooring plant in Murwillumbah."

Commenting on the outlook for the 2006/07 financial year, Mr Pearse said: “It is difficult for us to forecast macro-economic drivers over the next twelve months. Nevertheless, we expect Australian dwelling commencements to be around 140,000 to 145,000, which are well below underlying demand levels of around 160,000 to 165,000 starts. We anticipate however, continued strong activity in Australian non-dwellings and infrastructure activity.

“Effective price and cost management should mitigate some of the low housing volume-related impacts in Australia. However, we have extended our program of temporary plant closures to better manage inventory levels, which will continue to adversely impact Boral’s cost of manufacturing building products.

“Quarry End Use should contribute around $50 million of earnings predominantly in the second half of the year. In the USA, we expect some housing-related market softening from current record levels of activity but non-residential activity should lift. Volumes should remain at reasonably strong levels and price increases and cost reduction initiatives should continue to offset natural gas and other cost escalations. In Asia, we expect Plasterboard market conditions to remain competitive and cement and fuel cost increases to largely offset any benefits of possible volume increases and growth initiatives in our Asian Construction Materials businesses.

“Whilst growth initiatives will continue to progressively deliver improved benefits, we anticipate continued fuel-related cost increases in all markets and associated margin pressures. Operating cost improvements from performance enhancement programs of at least 3% are expected to continue to largely offset non-fuel related inflation impacts in FY2007. In the year ahead, we expect Boral’s EBITDA to improve. However, interest expense and depreciation charges will also be higher. Overall, subject to interest rates and activity levels in the USA and Australia, we expect that Boral’s net profit after tax in FY2007 will be comparable to the $362 million reported for FY2006."

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