Cutting costs is only a part of the answer
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.
Frequently Asked Questions about this Article…
Mike Kane is Boral’s chief executive. In his first 100 days he has focused on aggressive cost cutting, reorganising the business structure and setting plans to reshape capacity. Those early moves were aimed at ‘right sizing’ the company amid a prolonged downturn in construction, though the longer‑term strategy depends on planned asset sales and further changes.
Boral has implemented job cuts and a new organisational structure to match capacity to current demand. Management is also cutting inventories and prioritising cash generation. These measures reduce short‑term expenses and improve liquidity, but the article emphasises cost cutting is only part of the solution — strategic recasting of capital spending and asset sales are also needed.
Boral plans to sell assets over the next 18 months or so to free up about $200 million to $300 million. The Thai unit and the masonry division, with a combined book value of $45 million, are examples of sales already under way that act as a down‑payment on that target.
Management is recasting capital spending after previously running well ahead of depreciation, which kept the group running hard just to stand still. Boral has cut spending in areas such as roofing materials, brick production and windows, and is refocusing capex to better match current market demand — a move intended to preserve cash and improve returns.
The company’s tighter control of inventories and emphasis on boosting cash generation are designed to ease concerns about a prospective capital raising. However, the article notes uncertainty remains until the planned asset sales are largely complete, so investors won’t have a fully clear picture until that process advances.
Boral has downgraded the relative importance of its cement division, which is now smaller and more focused after the Waurn Ponds cut‑to‑clinker production and the sale of its Asian building materials business. The building materials division has also been downgraded as management reshapes the group.
Mike Kane acknowledges Boral operates in a cyclical business and said the company is at the trough of the cycle in some markets. He expects markets to come back but admitted he doesn’t know precisely when. For investors, that means near‑term performance will depend heavily on the construction cycle and the outcome of restructuring and asset sales.
Key risks highlighted in the article include the prolonged downturn in construction, uncertainty over the final shape of the group until asset sales are completed, continued high capital spending relative to depreciation in the past, and timing risk around when demand will recover. Investors should monitor progress on asset sales, cash‑generation metrics and any changes to the company’s capital spending plan.
Call 1300 880 160
Start a chat
Schedule a call
