Boral boss lays woes on the line
BORAL is several months away from completing the first stage of its restructure as it battles severe headwinds from cheap imports and overcapacity in sectors of the building products market.
On Wednesday it disclosed a net loss of $25.3 million for the December half, a reversal from the profit of $152.7 million posted a year earlier, on revenue of $2.8 billion, up from $2.4 billion a year earlier.
It posted a loss of 4.1¢ a share for the half, after earning 20.4¢ a share a year earlier.
Even so, directors have sought to retain investor confidence by declaring a 5¢ interim dividend, down from 7.5¢ a year earlier. This helped push up the shares 5¢ to $4.92.
Last month, Boral said it would axe 700 jobs - a quarter of its head office staff - as it attacks an "entrenched bureaucracy", according to the chief executive, Mike Kane.
A third of head office staff will probably lose their jobs by the time the restructuring is completed. "Our internal focus was getting in the way [of focusing on customers]," he said.
Boral refused to provide guidance for year to June earnings, since several decisions about the future of key building products are yet to be made. "Right now we're moulting, and it's not pretty," Mr Kane said of the restructuring.
Analysts welcomed his directness in outlining Boral's problems. "It's a turnaround story, not a cyclical recovery story," said one analyst, who pointed out "it is a six to nine-month story".
"CEOs who tell it how it is are always welcomed by investors. He's put his reputation on the line" in committing to getting costs out of the business.
Key problem areas are cement and building products - bricks, timber and windows - while the US is yet to turn round even with the small rise in housing starts there.
In the US, Boral expects housing starts this financial year will reach 860,000 units and rise to 1 million units next financial year. Changing market conditions there have pushed back Boral's break-even point to just above 1 million units, it said. Boral lost $38.7 million in the US before interest and tax, while the building products division lost $17.8 million.
In the cement division, Boral is to halt the production of clinker at Waurn Ponds in Victoria, with further changes planned.
"In cement ... the dynamics are changing - and changing rapidly," Mr Kane said. "With import [price] parity the ceiling, a low import price out of Asia and no price leverage, the halcyon days of the past won't come back. We're taking costs out on a phased basis."
Problems remain with the timber division as well, where the sale of several masonry units is yet to be completed, and also east coast bricks, where excess capacity is hurting margins.
InvestSMART FORUM: Come and meet the team
We're loading up the van and going on tour from April to June, with events on the NSW central & north coast, the QLD mid-north coast and in Perth, Adelaide, Melbourne, Sydney and Canberra. Come and meet the team and take home simple strategies that you can use to build an investment portfolio to weather any storm. Book your spot here.
Want access to our latest research and new buy ideas?
Start a free 15 day trial and gain access to our research, recommendations and market-beating model portfolios.Sign up for free