Fly Ash is a highly attractive growth business
Boral is well-positioned to deliver growth in the fly ash business
We are targeting to at least keep pace with cement-based demand growth and to grow fly ash substitution over time, while continuing to deliver price gains and synergies
- Demand is growing
- Price is growing
- Growing fly ash supply through several strategic opportunities
- Margins are strong and targeted to grow, albeit FY18 impacted by extreme weather and realignment of Texas network
- As previously stated, we remain confident in delivering ~US$24m of synergies from fly ash in year 4
Fly Ash Demand is growing
Cement demand a proxy for fly ash demand plus opportunities to increase substitution
Attractive demand growth opportunities
- Potential to expand substitution rates in concrete, currently ~16% (~50% in European markets1)
- Cement growth forecast2 at ~5% CAGR FY2017 – 21
- Ready mix producers motivated to increase fly ash as generally less expensive than Portland cement
- Fly ash increasingly being specified – performance and sustainability features
- Exposure to increasing US infrastructure spend
- Estimated infrastructure investment needed by 2025 is US$4.6 trillion3
Fly Ash Pricing is growing
The nexus between fly ash and cement pricing has been broken
Demonstrated strong price gains presents attractive opportunity to invest in increased supply options to grow business
- Primary Fly Ash pricing (~US$25 - $75/ton)1 tends to follow cement pricing (~US$90 - $150/ton) for the Ready Mix market
- Evidence that nexus between fly ash and cement pricing has been broken
- Over time, higher cost to serve expected to be offset by continued price gains
Fly Ash Supply is positioned to grow
Attractive growth opportunities being pursued for the near, medium and longer term
Positioned to keep pace with cement demand growth nearer term, then increase substitution
- Fly ash supply dependent on coal-sourced electricity generation; coal expected to remain ~30% of energy mix in USA1
- Targeting to replace volumes through alternate supply options as fly ash supply reduces due to utility closures over time
- Initiatives underway to increase sources of supply over medium to long-term including:
- network optimisation and beneficiation to reduce ash going to landfill (currently ~39% of fly ash produced is landfilled2, dramatically reducing in some markets)
- new ash storage facilities – fixed and mobile (including rail cars for mobile storage)
- new contracts (one recently secured in Florida)
- reclamation of landfilled fly ash3 (Pennsylvania to supply from Aug-18, ~5 other potential sites in planning or investigation stage)
- option to consider imports
Fly Ash margins are strong; targeting further gains
With underlying fundamentals, margins are strong and synergies should grow margins
- North America Construction Materials1 EBITDA margins of 21.1% in 1HFY2018, slightly down on 21.6% prior year proforma margins
- FY2018 margins impacted by higher site services work, adverse weather and higher costs associated with Texas network reconfiguration
- Strong fly ash EBITDA margins of ~22-25% underpin North America Construction Materials
- Margins will further strengthen through price gains, network optimisation, strategic supply initiatives and delivery of year 4 synergy targets
- Opportunities to expand fly ash site services footprint, which will further grow business but a slightly lower margin business
FY2018 impacted by weather and Texas realignment
- No concerns with the fundamentals of the North American business We remain highly confident about what the business can and will deliver.
- Volumes for the March quarter were below our expectation due to harsh winter weather conditions.
- Higher costs associated with repositioning fly ash supply to customers as a result of the closure of three of the four planned (Texas) closures, also impacted.
- Very well placed to maintain our sales as we have a broader network to call on…continuing to supply our customers by bringing volumes from further afield. But this of course adds costs and complexity.
- In total, the four utilities in Texas contribute a combined volume of around 400k to 500k tons of fly ash sold each year out of our total sales of roughly 7.5 million tons. There is still a considerable volume of fly ash being land-filled in Texas and in neighbouring regions which we are shifting to cover the plant closures. We still have 8 utilities we source from in Texas, several sources in neighbouring states plus we have several fly ash terminals in the region.
- Texas closures a short-term impact… we are confident that margins will fully recover over time as prices strengthen and the higher cost base is recovered. 8% per annum average price increases in fly ash in the first half FY18, and we have gone out with similar 8-10% increases in the current period. We are confident of recovering the higher costs.
- In some markets we have dramatically decreased the landfilling of good ash.
- We have accelerated our storage activities, both fixed and mobile, as well as our reclamation planning.
- We will soon be operational in Pennsylvania with our initial reclamation project, with further projects to follow - about five potential candidate sites for landfill reclamation that we are progressing.
- We will give you an update around this in August at results and in September at our US site visits.
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