Boral Limited (ASX: BLD) is engaging in cost-cutting in its Australian division in response to a slow start to the year. The bushfires and a lethargic construction market saw Boral downgrade guidance for the fifth time in two years earlier this month.
Now, the Australian Financial Review (AFR) reports that Boral chief executive Mike Kane plans to cut 100 jobs from Australian operations this half.
At the time of writing, Boral shares are trading 4.52% lower today at $4.86 apiece.
Jobs to go as cost-cutting ramps up
A Boral spokesperson told the AFR that around 100 staff left the company or were made redundant in the first half of FY20, with the same number to go in the June half.
The building products company is looking for full-year cost savings of $80 million, up from $40 – $50 million. CEO Kane has affirmed his intention to stay on to deliver the results of the cost-cutting after his departure was brought forward to August.
Lacklustre results in difficult conditions
Boral announced its half-year results last week which were broadly in line with guidance. The company faced a difficult first half with an accounting scandal uncovered in its North American windows business while it contended with tough market conditions.
Boral reported that underlying activity in most markets remained solid, albeit with cyclical downturns in Australia and South Korea. Boral Australia revenue decreased by 2% to $1,752 million with a higher contribution from Asphalt offset by lower revenues in Concrete and Building Products. Concrete volumes were 7% lower in the first half but fell 30% in January, which Boral attributed to the extreme weather conditions.
Programs in place in Australia focus on rightsizing, supply chain optimisation, and organisational effectiveness. Value improvement projects delivered procurement savings of $30 million in 1H20, with more than $80 million in savings now expected to be delivered in FY2020.
New CEO could lead to break-up
A search is underway for Mike Kane's successor, while Boral undertakes an internal strategic review of its main businesses. The results of this review are designed to allow the new CEO to hit the ground running, but could also prompt a break up of the business.
According to the AFR, analysts believe a new CEO will look to separate the underperforming North American operations. The AFR reports UBS values the North American business at $3.30 a share, but that investors have applied a 60% discount to the division due to poor execution by management in delivering growth. A split could unlock value that is not reflected in Boral's share price.
Outlook
Boral expects its FY20 earnings before interest, tax, depreciation and amortisation (EBITDA) to be down relative to FY19, with lower reported EBITDA in all three divisions.
Higher depreciation charges means an net profit after tax (NPAT) of $320 – $340 million is expected in FY20, compared to FY19's restated NPAT of $420 million.
