Wagners Holding updates on pricing evidence dispute with Boral; stock tumbles 10%

  • Apr 24, 2019 AEST
  • Team Kalkine
Wagners Holding updates on pricing evidence dispute with Boral; stock tumbles 10%

Wagners Holding Company Limited (ASX: WGN), based out of Queensland, Australia, is a diversified construction materials and services company that is engaged in production of advanced new generation building materials. Its product offerings include cement, concrete, aggregates, new generation composite products and other services like transport precast concrete and reinforcing steel. Wagners operates domestically as well as in foreign markets.

On April 23rd, 2019, Wagners Holding Company released an update, further to the company’s announcement on March 18th, 2019 regarding cement supply to Boral.

As informed previously, Wagners’ wholly-owned subsidiary Wagners Cement Pty Ltd, is a part of the cement supply agreement signed with Boral Resources Pty Limited and Boral Limited (ASX: BLD). Accordingly, Wagners was to supply cement to Boral, which was required to buy a minimum quantity on an annual basis at a fixed price.

Recently, Boral issued a Pricing Notice (as announced on March 18th, 2019) to Wagners which presented a market pricing evidence in the form of an unsigned offer from a well-known manufacturer of cement, located in South East Queensland, offering a price significantly lower than the one that was being charged by Wagners.

Subsequently, Wagners lodged for beginning a formal process debating the validity of the Pricing Notice, its bonafide nature and its compliance with the requirements of the cement supply agreement.

Besides, the company has also ceased the provision of cement supply to Boral until a resolution was reached or a determination by the courts was announced.

Wagners also mentioned that if the suspension lasts for a maximum six-month period, the potential impact of the Pricing Notice to the Company’s revenue would be around $ 20 million. On the other hand, if the Pricing Notice is invalidated after the whole process, the FY19 revenue and earnings are not expected to be so severely affected.

The latest development concerning the issue is that the parties have been unable to reach a consensus and therefore, Wagners has now filed a Statement of Claim in the Supreme Court of Queensland against BLD to seek a determination of the matter and reach closure.

Since the litigation commenced, the Company has now revised its FY19 guidance and reduced it by approximately $ 10 million until the resolution is achieved. In addition, the Company also expects the EBIT earnings for the full year FY19 to be in the range of $ 25 million to $ 28 million. This reduction, as mentioned above, also incorporates the disruption faced by the cement business as well as the impacts that will flow into the concrete market, conditions in the precast concrete market and delays in projects starting. Overall, the company foresees the remaining year to be favourable with expectations for FY19 expected to be achieved.

For the half-year ended December 31st, 2018, Wagners recorded a 3.1% rise in revenue to $ 125 million, and an EBIT of $ 16.2 million. Besides, the Proforma NPAT amounted to $ 9.0 million. The company also declared an interim dividend of 2.2 cents per share.

To date, Wagner’s market cap stands at $ 364.71 million. On Wednesday, April 24th, 2019, (at 01:50 PM AEST) the WGN stock is trending at AUD 2.030, diving by 10.18%.


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