Boral names Zlatko Todorcevski as new CEO

Newly-announced Boral CEO Zlatko Todorcevski is indicating that he may be bringing a shake-up.

Zlatko Todorcevski may be planning a shake-up at Boral.

Boral’s new chief executive Zlatko Todorcevski expects the construction materials giant will make a final decision by October over the fate of its struggling US division, amid investor pressure to sell its North American operations to accelerate a business turnaround.

Mr Todorcevski, a non-executive director and former Brambles, Oil Search and BHP executive, will replace long-serving boss Mike Kane with a shake-up on the cards after declaring there were “no sacred cows” when assessing both assets and strategy.

At the top of his list is making a call on the under performing US business which has divided investors since Mr Kane splashed $3.5bn on buying Headwaters in 2016.

The 52-year old leader — who spent the last few years as deputy chairman of Boral rival Adelaide Brighton — faces an unusual situation with chairman Kathryn Fagg already several months into an internal review of Boral’s operations.

Mr Todorcevski, who has not previously held a chief executive role, said he had been assured the board held no set ideas about the findings of the review with the focus on restoring value to shareholders.

“If I had an inkling there were any preconceived ideas from the board, I don’t think we’d be sitting here today. I’ve got a lot of comfort that the board was willing to understand exactly where we are and the fact that all opportunities would be considered,” he told The Australian.

Mr Todorcevski, who starts on July 1, has quit his Adelaide Brighton role and will step down from director roles at supermarket retailer Coles and casino operator The Star Entertainment Group over the next few months.

Mr Kane, who departs in September, will leave with a mixed record after taking the top job in 2012. The last few years have been particularly turbulent with a string of profit downgrades, an accounting scandal in the US, pressure from shareholders to review its underperforming US business and, most recently, the arrival of Seven Group as a major shareholder.

Zlatko Todorcevski.

Boral shares have fallen by 60 per cent in the last two years, with the company facing criticism for failing to more effectively cash in on Australia’s infrastructure boom and now facing an uncertain outlook for construction in the wake of the COVID-19 pandemic.

The arrival of Seven Group on Boral’s share register has added to pressure on Boral’s board, with the Kerry Stokes-controlled conglomerate open to selling its US division in order to concentrate on its Australian business. Seven Group indicated on Friday it will push for changes at Boral after describing the construction materials giant as facing challenges around leadership, strategy, litigation and execution.

Ms Fagg said she has spoken to Seven Group’s chief executive Ryan Stokes several times since the company emerged as a major shareholder earlier in June.

“We had very constructive conversations. They clearly see value in their shareholding in Boral, consistent with the way we do and they see value upside as do we,” Ms Fagg said. “We’re very aligned in looking at creating value.”

Morgan Stanley estimated last week that Boral could be worth between 35-38 per cent more if it focused on its core divisions with a change in strategy possible either through Mr Kane’s successor or in a takeover scenario.

It noted driving efficiencies in Boral’s Australian business “will be key” with a cost cutting process underway with residential products potentially receiving a boost from federal government stimulus post COVID-19.

Mr Todorcevski, who will be paid $1.75m in fixed salary and $150,000 in Boral shares, said the company had underperformed in recent times.

“It is fair to say that in recent times, the company has not performed in line with the market’s or the board’s expectations.”

Mr Todorcevski’s appointment as chief executive may hasten a sale of its US business as part of a major overhaul of the construction materials giant, Jefferies analysts said.

Mr Todorcevski is the second catalyst for change at Boral after the emergence of Seven Group signalled a shift from passive to active investor ownership.

A “North American sale and completion of the Knauf joint venture are still to come to provide management clarity and focus and much welcome balance sheet relief if and when an appropriate buyer can be found for all of part of the US business,” Jefferies analyst Simon Thackray said.

Boral’s US business is worth less than the $3.5bn it paid for Headwaters in 2016, dragging down returns on funds employed, with a potential deal providing balance sheet relief.

“An exit from North America on our valuation would all but extinguish the USD debt burden, reduce span of control to promote management focus and result in a business that delivers returns on funds employed through a cycle well above weighted average cost of capital,” the broker said.

Selecting a local executive to take on the top role at Boral also hints at its likely domestic focus compared with the US background of Mr Kane.

After years of international travel and offshore responsibilities, Mr Todorcevski has “adopted a domestic personal preference and we see a local appointment as a likely signal of a renewed domestic focus at Boral,” Jefferies noted.

Seven Group, which owns the Coates and WesTrac businesses, is expected to creep up the Boral register to gain both influence on strategy and expected growth from an Australian infrastructure boom.

Boral shares rose 1.7 per cent to $3.54 on Monday, bucking a broader fall of 2.2 per cent in the benchmark S&P/ASX 200 Index.

At that price the group had a market capitalisation of $4.34bn.