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Boral opens door to infrastructure investment: Seven Group Holdings

 

Industrial services and media giant Seven Group Holdings has outlined the rationale behind its increased stake in Boral at its 2020 annual general meeting.

Seven Group Holdings (SGH) said the dislocation in Boral’s share price over the course of the year had allowed it to build a substantial interest in the construction materials company, with SGH now owning just under 20 per cent of Boral (19.98 per cent).

The company expects growing infrastructure activity to leverage its higher stake in Boral.

“You will note that the addition of a new segment this year, of building products and construction materials through the acquisition of a 20 per cent stake in Boral,” SGH’s managing director and CEO Ryan Stokes said. “We are excited to leverage the Group’s exposure to the continuing infrastructure investment cycle.

“The focus is now to support Boral management to rationalise their portfolio, improve operating performance to restore earnings and value,” Stokes added.

Stokes is one of three recent appointments to the Boral board of directors.

The increase in infrastructure will turn assist SGH in “incremental exposure to infrastructure investment thesis with no contracting risk”.

In addition to its near 20 per cent stake in Boral, SGH owns Australian Caterpillar dealer WesTrac (which has the distribution rights to Caterpillar plant and equipment in Western Australia, New South Wales and the Australian Capital Territory) and Coates Hire, Australia’s largest rental services company.

Stokes anticipates the expected growth in infrastructure activity would “support our growth aspirations for Boral and Coates [Hire] who are both expected to benefit from the acceleration of projects due to recently announced Federal Government infrastructure investments focused on shovel ready projects”.

SGH also reported a 13 per cent increase to its industrial services earnings before interest and taxes (EBIT), with WesTrac delivering 15 per cent revenue growth and 22 per cent EBIT growth.

Coates Hire’s EBIT was up $204 million on the previous year, despite a softness in the construction market and COVID-19 directly impacting the company’s events hire business (eg Supercars, the AFL). It is expected to rebound in the second half of FY20 with the reductions in COVID-19 restrictions and shovel ready projects coming onstream.

Coates offers heavy-duty earthmoving plant and equipment for hire, as well as trucks, vehicles and trailers, generators and power distribution, materials handling equipment, and concrete and masonry equipment.

Boral AGM results in microcosm
Boral’s 2020 AGM saw the company prepare to sell its 50 per cent interest in USG Boral for USD$1 billion to partner Gebr Knauf KG.

For the year ended 30 June 2020, sales revenue was at $5.67 billion – down by one per cent in the 2020 financial year, and also included a five per cent drop in revenue from Boral Australia.

Boral Australia’s EBITDA was 25 per cent lower than the previous year but the company’s portfolio review found significant value and strengths in its Australian quarries, cement, concrete and asphalt businesses.

Boral Australia is now opting to refocus on its operating leverage and cost base reductions.

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