5 May 2015
Boral and CSR cement brick joint venture
The number of competitors in east coast brick making has fallen from three to two with building materials heavyweights Boral and CSR forming their brick joint venture on Friday.
The combined entity, called Boral CSR Bricks Pty Ltd, commenced operations May 1. It will initially trade under the existing Boral and PGH bricks brands.
Boral CSR Bricks, 60 per cent owned by CSR and 40 per cent owned by Boral, can produce more than 600 million bricks across 12 manufacturing sites.
On a combined basis, the two businesses generated $270 million of revenue in the 12 months ended December 31.
After nine months of deliberations, Australian Competition and Consumer Commission chairman Rod Sims approved the merger in December 2014 despite initial concerns about the reduction of competition.
ASX-listed Brickworks is now the only other major brick maker in New South Wales, Victoria, Queensland and South Australia.
Brickworks, CSR and Boral have all complained about the structural decline in bricks, high fixed costs, and overcapacity leading to inadequate returns in the brick business.
Boral boss Mike Kane managed to convince the ACCC's Mr Sims that he would shut down and exit brick making if the JV was blocked because returns are so poor in his brick division.
However the new JV comes into action as booming new home building across the east coast of Australia is boosting demand for building products and materials suppliers like Boral and CSR are raising prices.
Brickworks, the nation's biggest brick maker, said in March that it is restarting mothballed brick facilities to meet surging demand.
The company said at the time orders for its Austral Bricks business in NSW are at their highest level since the 2000 Olympic Games and some factories only had seven or eight days of stock on hand.
Boral and CSR said integration of the JV will be completed over the next 12 months.
The two companies said they expect "initial savings" of $7 million to $10 million a year "as a result of consolidation of management structures and efficiency gains in sales and administration functions."
Most analysts believe that CSR and Boral can extract far more significant cost savings from the merger.
If the two companies decide to close some brick plants to consolidate production at select sites, the proceeds from the sale of land could be significant.
CSR's executive general manager of bricks and roofing, Nick Pezet, has been appointed executive general manager of the Boral CSR Bricks JV.
Mr Pezet will report to the joint venture's board.
CSR shares were up 2.3 per cent at $3.74 at 2:30pm AEDT on Friday. Boral shares were flat at $6.33.