Boral chief’s signature bet on the US becomes his worst nightmare


Meanwhile Kane, who declared himself “gutted”, told investors the president of Boral Windows David Decker has been “isolated” from “financial and operating issues as we continue our investigations”.

The impact on profit will be up to $44 million and at this stage is being treated as a one-off. The impact on Boral’s reputation and that of its management could linger longer. “In 46 years in business I have never seen anything like this,” Kane said.

Inevitably there will be questions raised about Kane’s future in the top job and whether the problems found in this division could be more widespread.

But for now at least Kane says he is staying put. Up until yesterday there had been an expectation he would remain in his position for another 18 months.

His potential internal successors are considered to be Boral’s chief financial officer, Ros Ng and president of Boral Australia, Wayne Manners.

On Friday morning investors delivered their own assessment of the damage, driving the stock down more than 6 percent by lunch.

Given the situation is now in the hands of forensic investigators it is difficult to provide certainty on  the earnings impact, and whether that would extend beyond one year.

The impact on profit is being treated as a one-off. The impact on Boral’s reputation and that of its management could linger longer.

Analysts prodded Kane on whether there is a risk that earnings from the prior year (the 2018 financial year) had been overstated or whether the problems had been confined to the period between September 2018 and October 2019, as nominated by Boral.

Kane said Boral was trying to understand what happened and whether the misreporting was based on what he described as “mismanagement or misconduct”.

He explained that the Windows division had been sitting on a separate financial platform outside of the main Boral shared services and finance functions in the United States.

Ng, who alongside Kane fronted investors on Friday said KPMG had conducted an external audit on the Boral North America operations for 2018-19 but hadn’t found any issues.

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But she also admitted that an internal audit by Boral back in 2017 had raised ‘flags’ in the windows division.

So how did the misreporting go undetected?

According to Kane, there are three lines of defence in any situation. “The first line is local management and management on the ground. Clearly that failed in this case. Senior Boral in North America is the second line. Obviously it was not detected”.

He added that “if an effort is underway to disguise the misreporting it is difficult to detect.”

It was management inside the Windows division that pointed out the problem ahead of an impending audit.

Kane has vowed to seek redress. The situation is complicated by the fact that Headwaters had only acquired the Windows business shortly before Boral’s takeover in 2017.

But according to a statement from Boral on the timeline of these irregular financial events, they occurred well after the Headwater acquisition was completed. In other words, they happened under Boral’s ownership.

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