Building giant Adbri CEO Nick Miller cut as pressures mount

Shares tumble as chief executive Nick Miller leaves the construction materials giant, which counts the Barro family as its biggest shareholder.

Building materials manufacturer Adbri has removed its chief executive, Nick Miller, after less than four years in the role and revealed an earnings downgrade as it battles cost inflation, wet weather and high energy costs.

The company’s share price plunged by 22 per cent after the abrupt exit of Mr Miller, with the board, led by majority shareholder Raymond Barro, bringing an end to the New Zealand executive’s tenure and replacing him on an interim basis with mining veteran Mark Irwin.

Adbri issued a new forecast for annual underlying net profit of between $75m and $85m, some 20 per cent below analysts’ estimates, with the company’s $553m net debt position sparking talk of a potential equity raising. The company booked a net profit of $116.7m in the 2021 financial year.

While Adbri had implemented out-of-cycle price increases, they have not addressed ongoing cost inflation, the company said, and it was looking at further cost cuts.

The group has launched “a critical review” of expenses to deliver further savings by focusing on operational efficiency tweaks. It will review supplier and customer contracts for repricing opportunities and fast-track its sale of surplus land to raise cash.

Adbri deputy chair Vanessa Guthrie said changing market dynamics meant the company had to drive efficiencies and lower its costs to boost margins.

Mr Irwin – a former OZ Minerals and BHP executive – was named interim chief executive on a fixed annual salary of $1.4m for six months, starting Tuesday.

“Mark’s immediate priorities upon joining will be driving our commercial performance in all end markets to improve margins and offset cost pressures, while accelerating our cost reduction and operational efficiency initiatives,” Mr Barro said. “He will also focus on our capital deployment to ensure efficiency and effectiveness in the current environment, in order to deliver the best returns for shareholders.”

Residential construction provides about a third of Adbri’s earnings exposure, with mining above 20 per cent but infrastructure below 15 per cent. Picture: Andrew Henshaw/NCA NewsWire

Adbri shares have now lost half of their value so far this year, handing the company a market capitalisation of $936m. They fell 22 per cent or 41c to $1.44 on Monday, just two months after taking another big hit after a “soggy and disappointing’’ half-year result.

Analysts at Jefferies Australia told clients that the culprits were wet weather and cost escalation “which could not be tamed” by out-of-cycle price rises.

“We assumed a worsening outlook and were already below consensus. However, this trading update points to something much more significant for Adbri, that has led to the departure of the CEO, the appointment of an interim CEO in Mark Irwin and guidance that looks to be 20 per cent below our estimates at the midpoint of $75-85m net profit after tax,” Jefferies analyst Simon Thackray said.

A major Kwinana cement upgrade in Western Australia, currently under construction, added to pressures. “Adbri maintains sufficient liquidity. However, they are also in the middle of a large capex program of around $295m this year – Kwinana – and the weaker outlook is not helpful to investor confidence,” Mr Thackray said.

MST Marquee analysts told its clients that it was clear the building materials industry had not been swift and disciplined enough to be able to recover costs, echoing issues at Adbri’s larger local competitor, Boral.

“It’s a sudden change of leadership, but we understand the desire for leadership change given the significant erosion of Adbri’s lime and cement positions in recent years,” MST analyst Keith Chau said. “We do not know Mr Irwin, but it appears he comes from outside of the heavy construction materials industry, so it is difficult for us to judge his level of understanding of how critical it is for the industry to be pushing through price increases.”

Mr Miller was named chief executive of Adbri in January 2019. He was seen offering valuable experience to Adbri after running NZ construction and infrastructure company Fulton Hogan, which has a sizeable business in Australia.

His time handling the Fulton and Hogan dynasties, the private rich-list families that control the NZ company, was also highly prized given the sensitivities of managing conflict protocols at Adbri.

While Barro’s 43 per cent stake had been built up over two decades, disgruntled rivals have suggested the cosy relationship between the companies may have shut out other suppliers. The competition regulator dismissed the issue after launching a probe.

Residential construction provides about a third of Adbri’s earnings exposure, with mining above 20 per cent but infrastructure below 15 per cent.

Mr Miller said two years ago he was under no illusions about the challenges of cashing in on the much-hyped infrastructure boom, with Boral’s relative failure to tap the opportunity seen as a warning light.

Originally published as Building giant Adbri CEO Nick Miller cut as pressures mount