Boral boss lays woes on the line
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.
Frequently Asked Questions about this Article…
Boral reported a net loss of $25.3 million for the December half. The result reflected pressure from cheap imports, overcapacity in parts of the building products market and weakness in key divisions such as cement, timber and bricks. Revenue rose to $2.8 billion (from $2.4 billion a year earlier), but the business swung from a $152.7 million profit a year earlier to the loss reported.
Boral posted a loss of 4.1 cents a share for the half, down from earnings of 20.4 cents a share a year earlier. Directors declared a 5-cent interim dividend, reduced from 7.5 cents a year earlier, a move the company said was aimed at retaining investor confidence.
Boral is several months away from completing the first stage of its restructure. Last month it announced it would axe about 700 jobs — roughly a quarter of head office staff — and indicated that about a third of head office roles will probably be lost by the time the restructuring is completed. Management has described the process as a phased cost takeout and said the business is 'moulting.'
Boral refused to provide guidance for the year to June because several decisions about the future of key building products are yet to be made as part of the ongoing restructuring. Management said the business is still making strategic changes so it cannot give reliable full-year guidance now.
Boral reported a US pre‑tax loss of $38.7 million and said the US division is yet to turn around despite a small rise in housing starts. The company expects US housing starts to reach 860,000 units this financial year and to rise to 1 million units next financial year, while noting its break‑even point has been pushed back to just above 1 million units.
Key problem areas are cement and building products (bricks, timber and windows). In cement, Boral is halting clinker production at its Waurn Ponds plant in Victoria and said low Asian import prices and import‑price parity have reduced price leverage. In building products, excess capacity (especially east coast bricks), unresolved sales of masonry units and timber division weaknesses are hurting margins—the building products division recorded a $17.8 million loss.
The market reaction was moderately positive: Boral’s shares rose 5 cents to $4.92 after the interim dividend announcement and management’s frank explanation of problems. Analysts welcomed the CEO’s directness, describing the situation as a turnaround story (not merely a cyclical recovery) and suggesting the recovery could be a six to nine‑month process.
Investors should watch for updates on the phased restructuring (including final decisions on selling units and additional cost cuts), progress on the Waurn Ponds clinker changes, any further job‑cut announcements, quarterly performance of the US and building products divisions, and formal guidance for the year to June when management is ready to provide it. These developments will affect margins, break‑even targets and dividend policy.
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