Strategy on shifting sands as Boral seeks stability
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.
Frequently Asked Questions about this Article…
Boral's management is focusing on cost cutting, organisational restructuring and targeted asset sales to 'right-size' the business for the cycle. CEO Mike Kane has slashed jobs, tightened inventories, recast capital spending and is selling non-core assets to boost cash generation while the company waits for the construction market to recover.
Boral is aiming to free up about $200 million to $300 million through asset sales over the next 18 months. The company has already moved on the Thai unit and its masonry division, which had a combined book value of $45 million — described in the article as a handy down payment toward that larger target.
In his first 100 days Mike Kane has prioritised aggressive cost cuts, deep job reductions, tighter inventory controls and stronger cash-generation measures. He's also started reshaping capital spending and reorganised divisional reporting as part of a broader effort to stabilise the business.
Boral has been running capital spending well ahead of depreciation, which left the group under pressure to 'stand still.' Management is now recasting the capex program and trimming spending in areas such as roofing materials, brick production and windows. For investors, that means a focus on preserving cash and improving returns, but the full impact depends on the completion of planned asset sales.
Boral has reduced the scale and strategic priority of its cement division — following a cut at Waurn Ponds to clinker production and the sale of parts of its Asian building‑materials business — and similarly downgraded its building-materials division. Both units will now be run by an executive general manager rather than divisional managing directors, reflecting a leaner, more focused approach.
The company has been taking steps to ease concerns about a prospective capital raising by cutting costs, reducing inventories and boosting cash generation. Completing asset sales to free up $200–$300 million is another key part of reducing the need for outside capital, but management says clarity will come as those sales progress.
Key risks include the prolonged downturn in the construction cycle (the business is cyclical and in the trough in some markets), uncertainty about the timing of a recovery, and dependence on successful asset sales to reshape the balance sheet. Until those sales are largely complete, shareholders won't have a clear picture of Boral's final structure or growth outlook.
Management expects to free up $200–$300 million through asset sales over the next 18 months or so, with some progress anticipated sooner rather than later. The article notes that until those asset sales are largely complete, shareholders will not have a clear idea of the group's final shape or long-term growth prospects.
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