Boral, CSR Join Forces in Bricks 1

Friday, April 4th, 2014
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Australian building materials giants Boral and CSR have announced their intention to join forces and form a joint venture in an effort to boost their ailing brick manufacturing operations.

In a combined statement released to the Australian Stock Exchange, the companies announced they were seeking permission from the Australian Competition and Consumer Commission (ACCC) to form a joint venture to combine operations on the east coast of Australia including Queensland, New South Wales, the ACT, South Australia, Victoria and Tasmania.

The new venture would be 60/40 owned by the CSR/Boral respectively, with neither side contributing any additional cash.

Boral’s site at Scoresby in Victoria would be excluded from the joint venture, as would CSR’s at Schofields in New South Wales.

In their announcement, the two companies say a structural decline in demand bought about by bricks becoming an increasingly smaller component of the broader cladding market has seen a decline in capacity utilisation, and that immediate benefits from the proposed transaction would see initial overhead cost savings of $7-10 million whilst consolidation of selected manufacturing sites would lower per unit cost of production and enable the business to deliver returns which cover the cost of capital irrespective of building cycles in the longer term.

 “This joint venture is about retaining manufacturing in Australia and maintaining clay bricks as a choice for consumers in a broader cladding market” CSR Managing Director Rob Sindel said. “It is about strengthening the opportunity for employees and reinvesting in the industry while delivering satisfactory returns through the building cycle.”

Whilst the statement does not mention job cuts and stresses there are no plans for immediate plant closures, talk in the statement about rationalising sites indicates headcount reductions may be a possibility over the longer term.

The companies say more information about the proposed structure will be disclosed following completion of the ACCC review process.

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  1. David Chandler

    Bricks have been a foundation material in Australian Construction but here is another example that business as usual is no longer possible in our industry.It would be hard to pin the Boral/CSR decision on any particular cause. It could be the difficulty and cost associated with finding and establishing new clay deposits, it could be the high cost of energy used in manufacturing bricks, it could be the cost of laying bricks which often cost $1000/thousand bricks to lay. It could be the warranty obligations that go with brand Boral and CSR. It could be the rise in lower cost alternatives which now see light weight cladding systems skinned with textured acrylic systems. The pity is that a once durable and value creating feature of construction is under threat. The challenge for Boral and CSR is that all of their products could come under similar pressure as the shift to construction off-site gathers pace. This shift is not about just prefabricated buildings. Its about elaborately transformed off-site manufactures which require less and less on-site fabrication. And less waste produced on site.
    The challenge for Australia's construction materials companies is to determine how they will continue to serve the building industry in a market which is going off-site, becoming industrialized and going global.
    Its a national challenge. Slowly Australia's on-shore building industry's material supply chain is being whittled down. Its going off-shore.
    Its time for a national inquiry to look into what Australia's construction, housing and engineering industry will look like in 10 or 20 years.
    The action needed will more than just cutting overheads to ramp up short term profits for shareholders who must be starting to ask is it time to start returning their capital if a concrete strategy for a future in the market cannot be offered by today's construction material CEO s. Certainly most investors would be concerned if the only strategy is one that increasingly defers to off-shore as opposed to ones which looked to the future, embraced game changing alternatives and cemented a value creating deployment of capital into new construction supply chain opportunities. Its always amazed me why those with the most invested capital in the industry were prepared to slide so far down the supply chain that their ability to influence their futures was abandoned.