Ron Pearse on Boral

Ron Pearse on Boral
Published: 14 July 2004

Rod Pearse, the 57 year-old head of Australian building materials giant Boral has successfully led the group for the last four years and under his  leadership, Boral has doubled net profit to A$340 million from A$169 million four years ago when he was made chief executive and managing director as the company was demerged, hiving off its energy business in 2000.

 One of Pearse’s defining steps has been this year’s A$1 billion takeover tilt at cement maker Adelaide Brighton. The competition watchdog has blocked the bid on grounds that it would reduce the number of key producers in the cement industry from three to two, an argument Pearse rejects.  Boral and the Australian Competition and Consumer Commission now face a court battle in Melbourne next month.

 Pearse says: "Adelaide Brighton is active in markets we are not in – Western Australia, Queensland and South Australia. There is no overlap of activities."  In Victoria, if the takeover succeeds, Boral will probably have to hive off Independent Cement & Lime to AdBri’s 19.9 per cent shareholder, the privately held Barro Group. Given ICL’s exclusive distribution rights in the state, the combined strength of ICL and the Barro Group would mean a significant third cement player would continue to fight off import competition.  "Australia has a 9Mt cement market but there’s a large surplus of cement in Asia," Pearse says. "How we price our products and how good our products are in relation to imports are important considerations.

 "The ACCC sees it differently. There’s a difference of view and it is appropriate that the Federal Court hears both points of view when the case is heard in August. "It is not a question of taking on (ACCC chairman) Graeme Samuel and section 50 of the Trade Practices Act.  "We do not believe that the takeover would lessen competition. But it is not right to talk about degrees of confidence before the case is heard in court."

Boral’s market strength is in NSW, which represents one-third of its business – hence its move on AdBri to give it a bigger geographical market share. Pearse remains optimistic about the residential market, saying that housing activity this year is no different from last year. Detached housing has been falling in the past four to six months but medium-density housing has been reasonably strong.  He forecasts a soft landing in the housing market as there is no evidence of over-building.

 He is also pushing through cement price rises from A$5 a tonne in Victoria to A$10 a tonne in NSW and Queensland which should take effect in September – right in the middle of Boral’s court case with the ACCC. While some observers find the timing a bit strange, UBS analysts note: "The resilience of the domestic construction market and tighter supplies are supportive of the price increase. "They are slightly above import parity pricing in NSW, below in Victoria and slightly below in Queensland."  (Original report from The Australian)