Boral to form North American bricks JV with Forterra
Proposed 50/50 joint venture designed to make brick operations of both companies more efficient
BORAL Ltd have today agreed to form a North American bricks joint venture with Forterra, in a move designed to make the brick operations of both companies more efficient.
Owned by an affiliate of Forterra Inc., Forterra Brick are part of the Forterra group of companies – previously known as Hanson Building Products in the US, Canada and the UK – and are North America’s largest brick manufacturers with a total capacity of more than 1.3 billion bricks.
Headquartered in Charlotte, North Carolina, Forterra Brick employ approximately 650 people and have manufacturing facilities in Kentucky, Louisiana, Michigan, North Carolina, South Carolina and Texas, as well as Canadian facilities in Ontario and Quebec.
Boral Bricks are also one of the leading US brick manufacturers with a total capacity of more than 1.3 billion bricks. They are also the only brick manufacturer with a network of company-owned distribution centres across North America.
Headquartered in Atlanta, Georgia, Boral Bricks employ approximately 730 people and have brick manufacturing facilities in Texas, Oklahoma, Tennessee, Alabama, Georgia, North Carolina and Indiana.
Subject to regulatory approval and other standard closing conditions, the proposed joint venture will be 50% owned by Boral and 50% owned by Forterra. There is no upfront cash consideration as part of the proposed joint venture.
With a combined proforma EBITDA forecast to be between US$25 million and US$30 million for financial year 2017, the new joint venture is expected to benefit from significant cost synergies over time, making it a lower-cost competitor. The move will also position the company to be more resilient during periods of industry contraction and for healthy growth during the market recovery expected in the coming years.
Approximately US$15 million to US$20 million of non-recurring restructuring, rationalization and integration costs are expected to be spread over the first two years, after which cost synergies are expected to increase to over US$25 million per annum by year four.
The joint venture will bring together Boral’s US clay brick operations and distribution network, and Forterra’s clay brick and concrete brick businesses in the US and Canada. The combined business will have the capacity to produce more than 2.6 billion standard bricks per year, and will include 27 clay brick manufacturing plants, two concrete brick plants and 41 building products distribution centres.
Boral’s chief executive officer and managing director, Mike Kane, said: ‘The US brick business has been challenged in recent years – since the global financial crisis, when housing activity fell to historically low levels. While the market is clearly recovering, it is still well below 50-year long-term average levels, and given the high fixed cost and energy-intensive nature of brick manufacturing, it has been very difficult to create a profitable business through a low-demand environment.
‘The North American bricks joint venture provides the opportunity to create a more efficient and better positioned business to compete long term. We will be able to optimize Boral’s and Forterra’s combined manufacturing capacity and distribution network to serve customers better and compete more effectively in the broader cladding market segment.
‘Through a combined plant network with greater scale economies and being closer to the customer, improved utilization of freight and distribution, and a streamlined selling and marketing operation, the joint venture will be well positioned to realize significant savings and better meet end-market demand.’
Meanwhile, Boral have also reported an 8% increase in underlying profit after tax to A$268 million for the year ended 30 June 2016. Over the same period, sales revenue from continuing operations of A$4.3 billion was in line with the previous year, while earnings before interest and tax (EBIT) increased by 12% to A$398 million.