Cutting costs is only a part of the answer

Boral shareholders could be forgiven for asking: "Are we there yet?" Eight months after dumping its previous boss Mark Selway due to his abrasive management style, Boral is still trying to cut its cloth to suit its means amid the prolonged downturn in construction.

The new structure and job cuts outlined on Wednesday form part of the answer, but until Boral finishes its planned asset sales, the jury will be out 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," its chief executive, Mike Kane, said.

"I have full expectations they will come back. When they will come back, I don't know."

In his first 100 days in the job, shareholders have seen Kane take an axe to costs, which is in some ways, perhaps, the easiest part of his job. Now comes the harder, more strategic bit: continuing to reshape capacity as he and the board tinker with the strategy.

In this regard, the cost-cutting is notable, but only a part of the answer. More important is recasting its 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 smaller and more focused after the Waurn Ponds cut-to-clinker production and the sale of the Asian building materials business. Similarly, the building materials division has been downgraded.