Ryan Stokes bets on Australia’s return to growth after vaccination target

Caterpillar franchise WesTrac has done some heavy lifting for Seven Group, delivering $400m in earnings. Picture: Mark Calleja

Kerry Stokes will step down as chair of Seven Group having built the largest industrial conglomerate in the country, with son Ryan Stokes as chief executive. After the takeover of the year in Boral, they are both banking on Australian growth.

To put some perspective around the Boral takeover, Seven Group with a market capitalisation of around $7.8bn has ended up with 70 per cent of construction materials business Boral, which is valued about $6.9bn. Now chair of Boral, Ryan Stokes is overseeing the unlocking of value in the company for Seven through the sale of Boral’s various US businesses.

Seven Group’s full year results on Wednesday showed the power of its industrial businesses, with WesTrac – the Caterpillar franchise that Stokes senior build from scratch – delivering $400m in earnings and Coates Hire another $211m in EBIT. Boral expects an EBIT uplift of $200m-$250m in the Australian business by 2025.

The pivot in Seven Group’s portfolio gets interesting from about 2017 when Kerry Stokes decided to sell the $535m WesTrac business he had built in China. Like Boral, money came back to Australia.

“We were able to redeploy that capital back to buy the other half of Coates,” said Ryan Stokes, who executed the sale. “And the work we have done to unlock value there has been strong and there is still more opportunity as we play into the ongoing activity level for infrastructure and construction. One of our strengths is the ability to reshape the portfolio to where we think there are opportunities for growth.”

After the Coates acquisition, Beach Energy (in which Seven Group has a 30 per cent stake) then took 50 per cent of Lattice, giving it upside in the Waitsia LNG field, and then in 2019 Seven took a holding in Boral.

As it turned out, the Boral takeover was far more successful than Seven had planned, thanks to Boral board’s decision to continue with a share buyback. Ryan Stokes does not rule out a sell down of part of Seven Group’s 70 per cent stake.

Seven Group chief executive and Boral chairman Ryan Stokes. Picture: Britta Campion

“I’d say we are not actively contemplating it, we are very comfortable to hold that” he said. “We will actively assess what the next option might be and that could involve partnering with someone else, a sell down may be involved doing that, we could look to do something with the residual 30 per cent as well. We are open to all options.”

No dividends were announced at Tuesday’s Boral results thanks to a lack of franking credits, but returns to shareholders are coming after the sale of the North American building products business that will repatriate between $2.9-$3bn to Australia.

Ryan Stokes is now chair of Boral, WesTrac and Coates. Kerry Stokes hands the chair of Seven Group to former Coca Cola CEO Terry Davis, who joined the Seven board in 2010 just six weeks after Kerry Stokes had started his business. Chief financial officer Richard Richards has been with the Group since 2013 and has driven the careful capital management behind all the investments.

Ryan Stokes says his father’s decision to step down is a sign of his confidence in the Seven Group board and management and there is to be no lessening of the family’s financial interest in Seven (through Australian Capital Equity) sitting at around 60 per cent.

“It’s been a wonderful working relationship and experience, a personal relationship as well,” he said of working with his father in the family company and at Seven.

It must have been a classic watching his father through the Boral takeover with all the art of a season corporate raider.

“Yeah, absolutely, and he certainly loves that intensity” Ryan Stokes agreed. “I must say he might be jumping off the board but he’s not going far.”

The head of the Stokes dynasty is certainly not going far. He will be an advisor to the board and remains chairman of ACE and chairman of the strategically important Seven West Media, which is 40 per cent owned by the Seven Group and has seen a dramatic turnaround in business.

Seven Group is betting on Australian economic growth. The Group’s outlook assumes that Covid-19 lockdowns and constructions restrictions are not prolonged or pervasive. In Seven’s home state of Western Australia, opening up to the rest of the world is proving to be quite a challenge given Premier Mark McGowan’s strong Covid elimination position.

“We hope there is some moderation of that,” Ryan Stokes said. “From our business perspective, we understand the importance of protecting the mining industry and the fact that construction and power sector have not been disrupted so there is value in that.

“We’d like to think when we are at a vaccination rate in each area across the country that we can have more pragmatic controls and free people up to work and function and the economy to get back to being active again.”

Seven Group is rewarding all employees that get vaccinated with gift certificates.