SGH Boosts Earnings 10% with Boral Acquisition Driving Margin Gains

Strong Earnings Growth Amid Strategic Expansion

SGH Ltd (ASX:SGH) has delivered a solid first-half performance for FY25, reporting a 10% increase in EBIT to $843 million on revenue of $5.5 billion, up 2%. The results reflect the company’s disciplined execution and the strategic benefits of its full acquisition of Boral, completed in July 2024 for $4.4 billion. This acquisition has been a key driver of margin expansion and earnings growth, particularly within the construction materials segment.

CEO Ryan Stokes highlighted the company’s focus on customer service, operational leverage, and cost control as fundamental to the strong half-year outcome. Despite variable market conditions, SGH’s diversified portfolio across industrial services, energy, and media has provided resilience and growth opportunities.

Boral Acquisition Accelerates Margin Expansion

Boral’s integration into SGH has been a standout, with EBIT soaring 29% to $259 million despite a slight revenue decline. The company’s margin expanded to 14.3%, driven by pricing traction, cost rationalisation, and operational efficiencies. Boral’s progress on its “Good to Great” performance journey, including improved customer delivery metrics and fleet refresh initiatives, underpins management’s confidence in further margin gains.

While volume pressures persist in residential construction and roading, the broader infrastructure investment outlook remains robust, supported by government initiatives such as the National Housing Accord. This backdrop supports SGH’s positive outlook for Boral’s continued contribution to earnings growth.

WesTrac and Coates Deliver Mixed but Resilient Results

WesTrac, SGH’s Caterpillar dealer, reported an 8% revenue increase to $3.2 billion, with EBIT up 5% to $352 million. Growth in capital sales and services was tempered by a parts price reduction, but strong customer demand and operating discipline sustained earnings momentum. Notably, WesTrac’s operating cash flow surged 146%, reflecting improved inventory management and cash conversion.

Coates experienced a 4% revenue decline (normalised for divestments) amid softer activity in Victoria, but achieved record EBIT margins of 28.6% through pricing discipline and cost efficiencies. EBIT fell slightly by 2%, yet the company remains well positioned to benefit from a $1.8 trillion infrastructure and construction investment pipeline, particularly in transport and utilities sectors.

Energy and Media Segments Show Operational Progress

Beach Energy, in which SGH holds a 30% stake, grew production by 15% to 10.2 million barrels of oil equivalent, driving a 37% increase in NPAT. Efficiency improvements and cost reductions were key contributors. SGH Energy’s Crux LNG backfill project remains on track for first gas in 2027, with ongoing investments supporting future growth.

Seven West Media, with a 40% SGH ownership, faced a 6% revenue decline amid a shrinking TV advertising market but improved advertising share and cost reductions are expected to support modest earnings growth in the second half.

Capital Management and Outlook

SGH has strengthened its balance sheet post-Boral acquisition, reducing leverage to 2.2x Net Debt/EBITDA and extending debt maturities to 2030 and beyond. The company’s focus on cash flow and deleveraging positions it well for future growth opportunities.

Looking ahead, SGH maintains guidance for high single-digit EBIT growth in FY25, supported by solid demand across its core industrial and energy sectors. While some market variability remains, particularly in construction materials and equipment hire, SGH’s operational discipline and strategic investments provide a strong foundation for continued value creation.