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Boral share price on watch after financial irregularities

James Mickleboro

The Boral Limited (ASX: BLD) share price could finish the week with a day in the red on Friday.

The building supplies company’s shares look set to come under pressure today following a late announcement on Thursday.

What did Boral announce?

After the market close on Thursday, Boral announced that it has identified certain financial irregularities in its North American Windows business. This includes the misreporting of inventory levels and raw material and labour costs.

With oversight by the board and senior management, a confidential investigation is now being conducted by lawyers, who have also engaged forensic accountants to assist the investigation. Management advised that the matter is being treated with the highest priority.

The investigation is ongoing and the details are preliminary at this point. But the irregularities appear to relate to the period between September 2018 and October 2019.

Based on current information, management estimates that the irregularities will result in a one-off impact on its earnings before interest, tax, depreciation and amortisation (EBITDA) of US$20 million to US$30 million.

However, any potential ongoing impact on earnings from the Windows business is still being determined.

Boral’s CEO and managing director, Mike Kane, said: “We are undertaking a comprehensive and urgent investigation of this matter to fully understand the events and what we need to do in order to address the problem. We have implemented immediate steps to bolster the management and controls within this business. Once we have all the facts, we will ensure that appropriate action is taken at all relevant levels.”

The company is now reviewing its management, operating procedures, and internal control processes for its Windows business. It intends to adapt the review as the investigation results become clear.

What does this mean for FY 2020?

The company was already expecting EBITDA to be 5% lower than the prior corresponding period in the first half. This would imply first half EBITDA of ~$460 million.

So, this could mean a first half EBITDA result of ~$415 million based on the top of its US$20 million to US$30 million range. This would be a disappointing 14.5% reduction on the same period last year.

The post Boral share price on watch after financial irregularities appeared first on Motley Fool Australia.

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

The Motley Fool's purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool's free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. 2019