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Strategy on shifting sands as Boral seeks stability

17 Jan 2013 THE AGE - BRIAN ROBINS



BORAL shareholders could be forgiven for asking, "Are we there yet?"

Eight months after dumping its previous boss, Mark Selway, because of his abrasive management style, Boral is still trying to cut its cloth to suit its means amid the prolonged downturn in the construction sector.

The new structure and deep job cuts outlined on Wednesday form part of the answer, but until Boral finishes its planned asset sales, no one is in a position to comment confidently on its growth prospects.

This week's cuts are aimed at "right sizing" the company for the present phase of the business cycle, but there is much yet to be done.

"This is a cyclical business, and we are at the trough of the cycle in some of these markets," chief executive Mike Kane said. "I have full expectations they will come back. [But], when they will come back, I don't know."

In his first 100 days in the job, Kane has taken an axe to costs; which is perhaps the easier part of his job. Now comes the harder, more strategic bit: continuing to reshape capacity as he and the board tinker with strategy.

In this regard, the cost cutting is notable, but only a part of the answer. More important is recasting the capital spending program following cuts to areas as diverse as roofing materials, brick production and windows.

Capital spending has continued to run well ahead of depreciation, leaving the group running hard just to stand still.

As part of this, Kane is putting in place a much tighter focus on cutting inventories and boosting cash generation, which should go some way to easing concerns of a prospective capital raising.

The other part of this equation is asset sales.

The Thai unit along with its masonry division had a combined book value of $45 million. These sales represent a handy down payment on the $200 million to $300 million Boral will free up through asset sales over the next 18 months or so, with progress expected to come sooner rather than later. But until those sales are largely complete, shareholders will not have a clear idea of the final shape of the group.

Organisationally, Boral has downgraded the importance of its cement division, which is now smaller and more focused following the Waurn Ponds cut to clinker production and the sale of the Asian building-materials business. Similarly, the building-materials division has been downgraded.

Both units will now be run by an executive general manager who replaces the former divisional managing directors of these divisions, while the remaining divisions of construction materials, the US and Boral gypsum (which includes Asia and Australia) will have divisional managing directors, or their equivalent.