Misreporting scandal to hit Boral profit, as CEO Kane to retire

Mike Kane has stepped down as Boral’s boss as it issued a profit warning amid the fallout from an accounting scandal in the US.

Boral CEO Mike Kane is to retire after seven years in the top job. Picture: Renee Nowytarger

Boral boss Mike Kane has stepped down after the construction materials supplier issued a profit warning for 2020 amid financial fallout from an accounting scandal at its US windows business.

Mr Kane, appointed to the top job in October 2012, plans to depart Boral as chief executive after its full-year results in August following a torrid period for the Sydney-based company 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.

Boral said tough trading conditions have continued, with earnings expected to fall at its Australian, North American and USG Boral units.

The materials giant expects 2020 net profit of $320m to $340m compared with a restated net profit of $420m after adjusting for the misreporting in the US windows unit.

Shortly before 11am (AEDT) Boral shares were down 10 per cent at 4.61, after dipping at one stage to six-week low of $4.52.

Mr Kane said in December he had no intention of stepping down early from the company but chairman Kathryn Fagg held a series of high-level meetings with top 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 blockbuster $3.5 billion acquisition of Headwaters back in 2016 under Mr Kane split shareholders, some of whom were concerned about the earnings outlook from the deal.

Ms Fagg said of Mr Kane: “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.”

Boral said earnings were over-stated 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.

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 financial misconduct occurred over a 20-month period concluding in October 2019.

“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,” Mr Kane said. “We apologise for this failure and assure shareholders that such manipulation of figires will never be tolerated within the group.”