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New joint venture for Boral and CSR

Building materials firms to combine brick operations on Australian east coast

CSR Ltd and Boral have proposed a joint venture to combine their brick activities on the east coast of Australia, including operations in New South Wales, Victoria, Queensland, South Australia, Tasmania and the ACT.

CSR and Boral will approach the Australian Competition and Consumer Commission (ACCC) seeking clearance for the transaction. Completion of this transaction is subject to clearance by the ACCC.

 

The proposed joint venture will be owned 60% by CSR and 40% by Boral reflecting the relative valuation of the two businesses. There is no cash consideration as part of the proposed joint venture.

Brick demand in Australia has experienced a sustained structural decline, with bricks becoming an increasingly smaller component of the broader cladding market. Lower brick demand has resulted in declining capacity utilization, reduced profitability, plant curtailments and closures.

The proposed transaction will enable both Boral and CSR to access additional operational and overhead efficiencies that would otherwise be unavailable to the parties acting independently.

With a combined revenue in the order of AUS$230 million, initial overhead savings of AUS$7-$10 million per annum are expected following the formation of the joint venture and integration of the businesses.

Longer term, consolidation of selected manufacturing sites will lower per unit costs of production and enable both companies to develop selected high value land assets without impacting product range and operational capability. It also positions the business to deliver returns that recover the cost of capital through building cycles.

Boral CEO and managing director, Mike Kane said: ‘The Australian cladding industry has faced major changes in demand over the past 30 years resulting in a significant reduction in brick use. The reduced level of utilization in our brick manufacturing plants coupled with high input costs has meant that brick production in Australia has been increasingly challenged.

‘This joint venture is aimed at driving efficiencies across the combined network of operations and would provide a path for Boral to realize acceptable returns for our brick business and therefore secure our long-term commitment to the industry.’

CSR CEO and managing director, Rob Sindel added: ‘This joint venture is about retaining manufacturing in Australia and maintaining clay bricks as a choice for consumers in a broader cladding market. It is about strengthening the opportunity for employees and reinvesting in the industry while delivering satisfactory returns through the building cycle.’

 

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