Kane caned for failing to deliver on shareholder value

Boral chief Mike Kane. Illustration: John Tiedemann

Boral chair Kathryn Fagg is clearly living on another planet when it comes to the virtues of her chief Mike Kane, who will now step down in June two years ahead of schedule.

Fagg noted on Monday that “the board has enormous respect for Mike and remains appreciative of his dedication, strategic thinking, industry knowledge and experience”.

He undoubtedly has every one of those qualities, but sadly has failed in the key job of a public company chief, which is to deliver shareholder value.

Kane seems a little delusional when, at a press conference on Monday, he left open the possibility of joining a board in Australia. Last year he resigned from the Sims board effectively before joining, in the face of a shareholder ­revolt against him.

The fact is Boral has underperformed the market in total returns by more than 60 per cent since Kane took the reins in 2012. He is a standout defender of the company against trade union interference, but there is more to value creation than beating up on the CFMEU.

In its inaugural shareholder letter earlier this year, Boral shareholder John Wylie’s Tanarra Capital noted “Boral’s share price today is less than what it was 15 years ago. It’s down 21 per cent over that time period while the ASX 100 index is up 80 per cent. Australian nominal GDP is 125 per cent larger than what it was 15 years ago.”

Tanarra is a big fan of the Australian construction materials business and its exposure to the booming infrastructure market, but not the “acquired growth” ­attempted in the US.

“The international agenda has not produced the hoped-for benefits of diversification and growth; rather, it has had, in our opinion, the effect of diluting returns and lowering the stock price,” it said.

The market wants Kane gone today and cannot understand what planet Fagg is on when she declares he has left the company in a substantially better position.

Yet another profit downgrade sent the stock down 10.9 per cent to $4.59, to underline the point.

Kane is leaving earlier than planned, but assuming Fagg has her succession plans in place, there is no excuse for leaving him in the job for another six months.

Accounting fiddles in the windows division of Kane’s 2017 $3.5bn Headwaters acquisition added yet more reasons for the market to question just what value shareholders will reap from the deal.

Asian gypsum represents the upside, but Boral shareholders now have to work with the knowledge their fortunes will be determined by the performance of management at Knauf, which is acquiring previous joint venture partner US Gypsum.

Fagg inexplicably approved Kane’s decision to accept a seat on the Sims board last year just as Boral was unveiling another profit downgrade.

Australia now accounts for 60 per cent of Boral earnings and the US 40 per cent. But there’s ­little to show from Asia yet.

Over the years Kane has ridden the wave, as shown by his 2017 pay of $9.8m, down to $6.8m in 2018 and $2.7m in 2019.

Unless Fagg wants to invite a shareholder storm, he won’t be collecting much more than his $2.3m take home pay this year.

In his time in Australia, shareholders have covered domestic living expenses of about $600,000, so it seems rent will not be a problem going forward.

The internal contenders for his job would include finance chief Ros Ng and construction materials boss Ross Harper.

Fagg was presumably joking when she said she would embark on an international search given the writing has been on the wall for months and that search by now should be completed.

ASIC looks at NewSat

While Melbourne broker EL&C Baillieu and retired corporate boss Stephen Macaw work through their departure terms, one of Macaw’s past clients is due to ­appear in Melbourne County Court on Friday.

ASIC is taking on former NewSat boss Adrian Ballantine. NewSat collapsed in 2015 leaving investors short $200m-plus.

Macaw and reportedly his brother Scott played a key role in helping to raise finance for the company, which was supposed to create a satellite launching empire. The company obtained finance from the US Exim bank, but when it collapsed left myriad questions on its ASX disclosures.

When the ASIC case is heard in full, the details of the mess should emerge.

Normally in financial services when someone quits they walk immediately, but Macaw is, according to a spokesperson, handling an orderly transition.

The whitegoods guys

JB Hi-Fi closed up 11.5 per cent on Monday at an all-time high of $44.71 due in part to a standout performance from whitegoods retailer The Good Guys.

Ask Richard Murray just what his predecessor Terry Smart is doing so well and he would probably say creating a destination brand. That, of course, is the secret behind JB Hi-Fi, Bunnings in hardware or Dan Murphy’s in ­liquor — if you think home electronics you think JB Hi-Fi.

The Good Guys is now considered the first choice, so if you are a whitegoods producer and you want to sell your product you give Terry Smart a call.

That’s what the folk at Smeg and Miele have done, and the call becomes infectious until, of course, the retailer becomes arrogant and sloppy.

That is the hardest thing for Murray to do — maintain the performance of his stores by constantly lowering the cost of doing business and improving margins.

Three years ago, every analyst in town wrote off JB Hi-Fi as yesterday’s hero because Amazon was coming to town.

Amazon is in town and, while it hasn’t laid a punch on Murray yet, Amazon’s stockmarket value is $US1 trillion ($1.5 trillion) against his $US3.1bn.

It is playing a 10-year game in Australia that has hardly started.

In the short term a big unknown around JB Hi-Fi is the extent of the coronavirus, which may hit supplies, but the fact is no-one knows just how long factories in China will be hit.

Then there is the fact consumers are 150 per cent in bargain-hunting mode, which means they chase promotions like Boxing Day and Black Friday sales. This half is short of those special days.

Online sales are about 6.3 per cent and edging up, and the trick for Murray is to deliver good value with minimal friction.

His shoppers would prefer to come to the store to buy a flat-screen TV, after comparing prices online, but are happy to buy low-value commodities such as printer cables online.

JB Hi-Fi staff are keen in part because they work on a commission structure, which rewards the whole store for good performance including the warehouse, while also lining the pockets of the gun sales people.