Boral boss out after downgrade

Mike Kane says his successor will require the powers of Superman to deliver in the top job.

Boral CEO Mike Kane is leaving the top job. Picture: Renee Nowytarger.

Boral boss Mike Kane says his successor will require the powers of Superman to deliver in the top job after agreeing to leave the troubled construction materials supplier in August after a fresh profit downgrade and US accounting scandal.

Mr Kane, appointed in October 2012, will depart as chief executive after its full-year results in August following a torrid run marked by a series of downgrades and the revelation in December of financial irregularities at its North American windows unit. An international search has been launched to identify his successor.

The 69-year-old American executive said he had always wanted to retire before turning 70 but conceded his replacement faced a difficult task juggling the challenges posed by its Australian, Asia and US divisions.

“I was joking with someone they’ll need to have a red S on their chest and a blue cape,” Mr Kane told analysts.

“The reality is these are tough jobs and they’re quite demanding and you don’t step into these roles lightly.

“It’s been challenging, the last seven-plus years — and I think that’s in dog years. It just tends to be quite strenuous.”

A 20-month period of accounting fraud at its US windows business and another poor trading update including a hit from Australia’s summer bushfire crisis contributed to a fifth profit downgrade in the past two years.

Full-year earnings will fall at its Australian, North American and USG Boral units, with the materials giant expecting 2020 net profit of $320m-$340m, compared with a restarted net profit of $420m after adjusting for the misreporting in the windows unit.

The company’s shares plum­meted 10.7 per cent to $4.60, marking a 43 per cent decline in the past two years.

Boral’s sixth largest shareholder said the board had ultimately made the right move on Mr Kane, given mounting problems at the company. The industry veteran had been expected to stay for up to two years but some shareholders had agitated for an accelerated exit.

“We weren’t pushing for a change, but he had to deliver and I guess this is another strike,” Legg Mason Martin Currie chief investment officer Reece Birtles told The Australian.

Boral’s ability to deliver on its $3.5bn acquisition in 2016 of the US Headwaters’ fly ash business will ultimately determine Mr Kane’s legacy, according to the fund manager.

“The bigger question is the execution on the fly ash business in the US. That’s where the opportunity is. Mr Kane had obviously been a big supporter of it and that’s where the long-term value is rather than this specific (accounting) issue,” Mr Birtles said.

“It’s definitely mixed. The strategic vision of what they’re trying to achieve in fly ash is great but the execution hasn’t occurred yet.”

Mr Kane said in December he had no intention of stepping down early from the company but chair Kathryn Fagg held a series of high-level meetings with shareholders shortly after the scandal broke, as tensions mounted over both the near-term performance of its troubled US business and the long-term strategy of the group.

Boral’s Headwaters deal split shareholders, some of whom were concerned about the earnings outlook from the deal.

“While the business has faced considerable challenges, including lower than expected growth in North America, it is important to acknowledge that since his appointment as CEO in 2012, Mike has set Boral on a path to deliver substantially improved performance for the long-term,” Ms Fagg said in a statement on Monday.

Mr Kane reiterated his belief the Headwaters deal was good for the company and would prove a valuable earnings contributor over the long term.

In the near term conditions remain volatile in the Australian market from both bushfire and flooding issues in Queensland and NSW, while select projects in a big infrastructure pipeline had been delayed, causing some softness.

Boral said earnings were overstated in its US windows business, acquired as part of the Headwaters deal, by $US24.4m from March 2018 to October 2019. Audit reviews found the accounting fraud was confined to the windows business, with both the vice-president financial and financial controller of the division axed from the company.

“It was really a bizarre but benign situation where people were doctoring the books to improve the near-term performance of a business and that if you looked at it long enough it would ultimately have come out,” Mr Kane said on Monday. The probe found finance staff within the windows business “manipulated accounts and financial statements primarily to artificially inflated the overall profitability and health of the windows business,” Boral said in a statement.

“The board and management are deeply disappointed at the breach of trust that led to the accounts of the windows business being misreported to inflate profitability.

“We apologise for this failure,” Mr Kane said.