THE DISTILLERY: Boring into Boral
Jotters pick apart the massive job cuts announced at Boral, with one putting part of the blame on the strong Australian dollar.
The Australian Financial Review’s Chanticleer columnist Tony Boyd explains how Kane has already received "deep” restructuring experience (isn’t that a very cold, even misleading phrase?) that he’s quickly putting to use at Boral.
"Kane’s restructuring credentials were honed at several companies in the US, including US Gypsum and Berkshire Hathaway’s insulation company, Johns Manville Corporation. He was also responsible for restructuring the US operations of Hansen, as well as Boral’s own operations in the US. His latest effort involved appointing two trusted lieutenants to lead the cost-cutting project. These were Robert Gates, who worked for Kane in the US and was formerly the head of information technology, and Darren Schulz, who used to run Boral’s US roofing business. These two were assisted by about 50 other staff and sought advice, including detailed analytical work by McKinsey & Co.”
Of course Boral chairman Bob Every famously replaced Mark Selway with Kane when the departed was only halfway through his apparent time-allocation. The Australian’s John Durie believes that's how the Boral chairman will be "mightily relieved” with yesterday’s share price surge in the wake of Selway’s exit.
"Reportedly, this came after a middle-level management revolt against Selway, but it was a gutsy call from Every given that no one outside the company knew what was happening or why he pulled the trigger on a successful change agent. Whether the long-term call was right remains to be seen, and in reality will never be known because the facts are Selway's changes are being supported by his replacement, so he set the ball rolling.
Fairfax’s Brian Robins similarly characterises the job cuts as an inevitable consequence of Kane’s elevation.
"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.”
Business Spectator’s Stephen Bartholomeusz says Boral is to a large extent at the mercy of currency differentials and the housing markets in Australia and the US.
"The strength of the Australian dollar has exacerbated the impact of weak demand from defensive businesses and consumers and cost-cutting and reduced investment are the obvious responses from companies facing a lacklustre at best outlook that they have to assume will be the best they can hope for in the immediate future. From industrial companies to banks to miners there is a lot of 'house-keeping' going on. Boral’s fortunes hinge on the condition of the Australian and US housing markets. In Australia house prices and activity has been sliding despite more than two years of declining interest rates. The US housing market is showing signs of recovery but off a very weak base. The currency relativities don’t help.
The Australian’s national affairs editor David Uren says the federal government is putting together plans that will strongly encourage, but not make mandatory, more investment in local manufacturing by big international investors.
"As Boral joins the list of major companies cutting staff, Julia Gillard and her ministers are finalising an innovation statement that will claim to help domestic industries leap into Asian markets with the help of stronger procurement policies. The draft blueprint stops short of mandating the level of local content that big investors must buy from domestic suppliers, choosing instead to require local participation on the understanding that this would include stronger spending.”
Meanwhile, The Australian’s Asia-Pacific editor Rowan Callick dwells on the possibility of a Japanese economic recovery…must be a slow news week!
Seriously though, that would be amazing for the global economy. We forget so easily just how big and mightily important Japan is and Callick’s piece serves as a useful reminder.
Indeed, The Australian Financial Review’s Greg Earl is similarly talking about the renewed sense of optimism around Japan.
Staying with international news, Fairfax’s Michael Pascoe takes us through the growing trend for Chinese manufacturers to outsource labour to cheaper markets like Vietnam. He also takes the time to point out that a jersey manufacturer in Hong Kong is doing so without complaining about globalisation and cheaper competing labour forces.
"And certainly wasn’t blaming his problems on internet shopping being exempt from GST,” writes Pascoe. While The Distillery isn’t opposed to digs at Gerry Harvey, Hong Kong doesn’t have a GST.
Meanwhile back home, Fairfax’s economics correspondent Peter Martin has got his hands on a survey from BlackRock, one of the world’s most important global investors, that says the impact from the mining tax, carbon tax and fourth budget deficit has done little to dissuade from investing in Australian government bonds.
The Australian Financial Review’s Matthew Stevens suggests that BlueScope Steel’s calls for industry protection (or rather, more industry protection) to combat China’s dumping practices is worth a second look at the European Commission’s investigation into the matter.
The Australian’s Uren writes separately that the pressure on Resources Minister Martin Ferguson to quarantine certain amounts of LNG for the domestic market, enhancing the competitiveness of local players, is being rightly resisted.
Uren adds that the decline of Australian industrials is the primary reason why our emissions are flat lining as they lose business to other markets, resulting in a subsequent increase in emissions elsewhere.
But the News Limited writer stresses that this has little, if anything, to do with the carbon tax.
And finally, You might remember a series of commentaries leading up to Christmas arguing that the December rate cut from the Reserve Bank of Australia would fail to inspire a significant increase in holiday spending. Fairfax’s Glenda Kwek has got her hands on an analysis that says that absolutely turned out to be the case. We didn’t spend big over Christmas.