Shares in Boral sold off yesterday after confirming staff at its North American windows business inflated earnings by nearly $37 million for 18 months between March 2018 and October 2019, as well as an earnings downgrade partly generated by the impact of the bushfires.
On top of that CEO, Mike Kane will depart after Boral reports its full-year earnings in August.
And the company has slashed interim dividend by 30% to 9.5 cents a share from 13.5 cents in the first half of 2018-19.
And as a sign that it knows there is more pressure coming for the shares this year, Boral reactivated its dividend reinvestment plan (DRP) which will start with the current interim dividend. The company will underwrite the DRP in respect of the interim and final dividends for FY2020.
In other words, Boral will support the share price for the rest of this year.
It’s no wonder the shares slumped yesterday, falling 12% to $4.52 at one stage before steadying to end a rough session at $4.60, off 10.7%. That’s the lowest close since March 2019.
While Boral warned of the problems in the US windows business in early December – which triggered speculation that Mr. Kane’s time was up – the update yesterday came as a surprise as analysts had thought Boral would reserve its news until the interim results announcement on February 20.
In the trading update, the company slashed full-year profit forecasts to between $320 million and $340 million, down from market forecasts of $362 million.
CEO Mike Kane will exit Boral after the company reports its full-year results in August.
In a statement, Mr. Kane said 2020 was the “right time” to hand over the leadership of the company. He will have served more than seven years as chief executive of the building products giant, which has operations in Australia and around the world.
“I expect that fresh leadership will build on what we have achieved so far as part of Boral’s transformation and seize future opportunities to deliver shareholder value. Boral has changed considerably and I firmly believe that Boral is a far better, more focused business today than it was in 2012 when I became CEO,” he said.
“While we have faced some challenges, the strategies we’ve implemented have put the company on a path to deliver stronger financial returns through the cycle. We have a portfolio of businesses that are each highly strategic in their own right, and together will deliver more stable returns over the longer term,” he said in the statement.
Boral also updated the market on the investigation by lawyers and forensic accountants into what happened at its North American Windows business.
“The investigation determined that finance personnel within the Windows business manipulated accounts and financial statements primarily to artificially inflate the overall profitability and health of the Windows business.
“The investigation found no evidence that the manipulations were to hide systematic theft of raw materials or finished goods inventory,” it said.
Boral said the misconduct over a period of about 20 months to the end of October 2019. It confirmed that the financial misreporting was limited to the Windows business.
Mr. Kane apologised that the misstatement had occurred.
“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.
“Boral has moved quickly to put in place stronger and more transparent reporting and governance mechanisms in the Windows business, in line with the systems in place across Boral’s other businesses and divisions,” he said.
Boral said the US events had meant that its pre-tax earnings were overstated by $US24.44 million between March 2018 and October 2019, which is in line with Boral’s preliminary estimate of the impact released last year.
In a trading update, Boral said its first-half net profit after tax in the first half of the current financial year was $159 million. That’s 12% down on a year ago.
