Boral rebuild will continue, Ryan Stokes says

The sought-after Boral boss is stepping down after just over three years, as he reveals his next plans.

SGH CEO Ryan Stokes and Boral boss Vik Bansal. Picture: John Feder/The Australian

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On the issue of timing, Ryan Stokes says it’s better to look at what has been achieved rather than length of tenure.

The SGH chief executive is talking following a management overhaul at one of the most ambitious growth bets made by his industrial conglomerate in recent years.

Stokes’ hand-picked Boral boss Vik Bansal will finish up early next calendar year, marking just three-and-a-half years into the role. The move also comes a year after the Stokes-backed SGH finished its buyout of Boral, which specialises in concrete, quarries and asphalt.

Bansal has driven a sharp rebound in Boral’s performance during his time, and will move onto the board of Stokes’ SGH group in a non-executive post. A search for a new CEO has commenced. On Tuesday senior Boral executive Matt McKenzie was appointed to the newly created chief operating officer role.

The significance of the exit spooked investors with SGH’s shares down 2.7 per cent by lunch, compared to a flat effort by the broader S&P/ASX 200.

The management switch comes at a critical time, with signs the big-spending infrastructure cycle is shifting down a gear. It is a test for the sustainability of Bansal’s change program, dubbed “PEMAF”. It will also test Stokes’ thesis for taking full control of Boral through the $1.2bn buyout of minority shareholders. With Boral spitting out cash, it also marks one of corporate Australia’s more meaningful internal renovations.

It was Stokes who got the ball rolling on the rebuild of Boral about five years ago first as an activist play, then a controlling shareholder. He forced a program of aggressive assets sales and when he had control, installed Bansal, who was poached from Sanjeev Gupta’s InfraBuild.

Stokes tells The Australian progress of Boral far more advanced than what was anticipated when he started out on the rebuild. This means everything is in place for a smooth succession.

However, the SGH boss says “the job is never really done” when it comes to driving the outperformance of any company. This means it needs to be more than an individual to see through longer term changes.

“When we first invested in Boral, we said we have an ambition to get this business to 10-12 per cent EBIT margin, which was almost a doubling from where it was at that point in time. We’re well and truly through that and on our way towards a mid-10 per cent EBIT margin target, which we should achieve next financial year,” he says,

“It’s quite a substantive journey that has been delivered, and the business is in a good place. The operating models clearly defined. The team are executing that exceptionally well. So everything’s in place to step through and drive that forward.”

“(Boral) is a long way ahead of schedule, and the key now is to make sure that operating model is locked in, and the team are driving towards it”.

Continuing along the performance path will be the focus of the new chief executive, he added.

A focus on pricing has prompted a surge in Boral’s margins. Picture: AAP

At SGH (previously called Seven Group) Boral sits alongside WesTrac heavy mining equipment arm, Coates Hire; the part-owned Beach Energy and television interests Seven West Holdings.

Media gets all the attention, but is a minnow alongside SGH’s big earning industrial heavyweights. Inside SGH, Bansal was certainly one of the higher profile of the line executives.

The shake-up comes amid suggestions Bansal had been approached to drive a turnaround program at other pressured companies. On that part, Bansal, who turns 60 this year, says the timing is right for him to finish up as a CEO and is now pursuing board opportunities. He recently joined the Brambles board and will join the SGH board when he steps down as Boral CEO next year. There are more board appointments expected in coming months.

“I’ve had more than 10 years in my CEO career, so it’s been a good time from that perspective, and I’ve been keen to do other things,” he tells The Australian in a separate interview. “You just know when the time is right.”

Under Vik Bansal, Boral has been switched the focus to price rises over volumes. Source: SGH

On timing, Bansal doesn’t feel there’s any issues around potential interruption for the path Boral is on. He says the heavy lifting on the turnaround project is done. And continuing to sit on the SGH board, this delivers continuity to the Boral handover. Stokes argues by being on the board Bansal will be able to turn his attention to other SGH businesses.

Under Bansal Boral’s earnings resurgence has been impressive for a company that’s been perennial underperformer. Analysts are tipping earnings this year to hit as much as $480m, a record level, compared to a little over $110m when Bansal took charge. The profit jump comes on a much smaller collection of assets, suggesting Boral is now a far more efficient business.

Much of Bansal’s focus has been around boosting margins through pricing. This is a shift from Boral’s past habits to chase volume over profit. Bansal too pushed out its sales teams into the field, rather than all concentrated at head office. The lingering question is what the longer-term earnings profile of Boral looks like beyond Bansal’s changes.

For that Stokes comes back to his original interest in Boral: “It was a great company that was just not living up to its potential”.

The SGH boss says the longer term market opportunity is there, particularly with a rebound in housing construction. “This opportunity has always been much broader than the short term cycle. It’s been a belief that a company like Boral can perform over a long duration,” he says.

Revved up

MotorCycle Holdings has now surged more than 26 per cent since signing-off on a deal last Friday night to buy a package of stores, including several Harley Davidson dealerships from collapsed motorbike retailer Peter Stevens.

Why do punters like it? For the Hamish Douglass-backed MotorCycle, it was a dream buyout.

Peter Stevens administrator KordaMentha gave the green light for a carve-up at between $7m to $9m depending on the final inventory count.

This means the MotorCycle’s chief executive Matthew Wiesner was able to cherry pick seven of the best stores across four states and established online retail store, while leave behind business lines that were marginal. The deal also transfers the IP of the strong Peter Stevens brand for zero goodwill. The sale multiple represents just 3 times earnings.

MotorCycle gets just the stores and more than 200 Peter Stevens staff, without costly head office costs (although some additional corporate roles will move across). It puts MotorCycle a step closer to cracking the $1bn in annual sales.

Peter Stevens Motorcycles will be carved up.

The buyout turns the Brisbane-based MotorCycle into a true national player. It gets both Peter Stevens and Harley Heaven-branded stores across Victoria, South Australia and Western Australia. These are regions MotorCycle had either a tiny footprint or none at all. It also delivers two Harley Heaven stores in Sydney.

The buyout takes MotorCycle’s share to 20 per cent from 16 per cent currently. That is serious scale in what is still a highly-fragmented retail market.

MotorCycle gets a boost to be sure, but the relatively tight bike industry is still reeling from the sudden collapse and carve-up of the privately-owned Peter Stevens that dominated the market in Victoria.

There’s more work to be done by KordaMentha, but MotorCycle’s Wiesner says through his own homework there were several things that stood out. Namely Peter Stevens’ push into the distribution of EV-motorbikes made by Californian brand Zero had been “challenging”. “That’s not something that’s coming across to us,” he was quick to add. He also spoke about the post-pandemic impact of inflation on retail while higher interest rates have put the brakes on sales.

“Effectively our cost base from pre-Covid days to post-Covid has increased 25-30 per cent so certainly that had an impact in regards to people costs and rent costs”.

As a pure retailer, Peter Stevens could not rely on parts and distribution as the slowdown hit.

Several properties owned by the family behind Peter Stevens will continue to house the new stores, but Wiesner has been able to renegotiate the leases. “Viability is the key,” he says.

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