Boral boss criticises US deal, rules out raising

Boral has scrapped its payout and earnings forecasts as it crashed to an annual bottom line loss after writedowns.

Boral CEO, Zlatko Todorcevski. Picture: Jane Dempster

Boral has conceded it overpaid for its $3.5bn US Headwaters deal and it is reviewing the future of its entire business with nothing “off the table”.

The revelations come amid investor pressure to quit North America. But on Friday the company ruled out the need for an equity raising, saying such a move wouldn’t solve its problems.

The building materials supplier crashed to an annual bottom line loss of $1.14bn after writedowns, as it axed its dividend and earnings guidance for the 2021 year.

Zlatko Todorcevski took over as chief executive eight weeks ago from former boss Mike Kane and admitted the business has underperformed.

“In recent times the company has not performed in line with expectations,” Mr Todorcevski said.

“In recent times we’ve let our shareholders down and in the process we’ve let our people down. I’m determined to rectify that.”

The Headwaters deal championed by Mr Kane also had disappointed, noting a $1.2bn write­down on its US business this week.

“We have some excellent assets and businesses in many parts of the company but these are sometimes not delivered to their potential. Our expansion into North America through the Headwaters acquisition has underperformed.

“Having looked at that acquisition in closer detail, my view is that we paid a value that left little room for error, which was unfortunate considering execution was found wanting.”

Analysts have suggested Boral would look to raise more money given challenges in the business, but Mr Todorcevski ruled it out.

“We’re looking at options to de-lever the balance sheet and we’re confident we have a number of means to achieve this without requiring an equity raise,” Mr Todorcevski said.

“In fact, I feel raising equity may take the pressure off our business. I’m not in the business of just throwing more money at our problems. Instead we need to do some heavy lifting to get the balance sheet right.”

A review of its capital structure is also under way, with Boral stating it was determined to maintain an investment grade credit rating. A portfolio review is assessing every business across its Australia, US and Asia assets with a focus on market outlook, competitive positioning and the potential to deliver improved earnings and growth in the near term and into the future.

Major shareholders including Kerry Stokes’s Seven Group are pushing for changes at Boral and want a greater focus on its Australian operations.

“To be clear, we’re looking at the entire company, not just certain regions or certain segments. Nothing is off the table.”

Boral has established an internal team reviewing its operating model with the results to be announced to investors by the end of October.

“The intent is that by the end of October when we discuss the future portfolio direction and the operating model, we’ll also be in a position to commence execution immediately if that hasn’t already started.”

A Boral asphalt plant

The company on Monday had warned the market of the profit drop along with the suspension of its final dividend after taking $1.35bn in writedowns across its US and Australian businesses, as the pandemic continues to hammer the construction industry.

“This serves as a reminder if I needed one that these are pretty tough times for business globally and Boral is no exception,” Mr Todorcevski said on Friday. “These are obviously sobering figures.”

Boral’s statutory $1.14bn loss, following a $251m profit last year, came after impairments relating mostly to assets within Boral North America and its investment in the Meridian Brick joint venture.

The ASX-listed construction materials manufacturer reported full-year pre-tax earnings of $825m after guiding to a $820m-$825m range, and net profit after tax of $177m compared with a $175m-$180m range. Both were sharply lower from $1.037bn and $440m respectively from the same time a year ago.

US housing activity has been lower than expected while weaker Australian residential construction and infrastructure have been battered by the pandemic and poor economic sentiment.

Boral said the outlook for 2021 was uncertain amid the pandemic. The company has started the 2021 financial year with lower revenue but only slightly lower earnings compared with the same stage last year, although Melbourne remains vulnerable.

“It is unclear how long stage-four lockdowns in Melbourne will continue. At this stage of the lockdown, concrete volumes in our Melbourne metro business are down 20 per cent relative to last year,” Mr Todorcevski said.

Demand in the US is strengthening although sales are still down on last year and economic uncertainty is clouding the outlook, Boral said.

Mr Todorcevski was named in June as the successor to Mr Kane, who left Boral with a mixed track record. Mr Kane oversaw Boral’s $3.5bn takeover of US building manufacturer Headwaters in 2016 — the biggest US deal by an Australian company in five years — although the scale of the transaction and the hefty capital raising to fund it irked some shareholders.

Boral shares rose 2.3 per cent to $3.93.