Good morning, this is the conference operator. Welcome, and thank you for joining the Saint-Gobain to acquire CSR conference call. After the presentation, there will be an opportunity to ask questions by pressing star one at any time. At this time, I would like to turn the conference over to Mr. Bazin, CEO, and Mr. Sreedhar, CFO of Saint-Gobain. Please go ahead.
Thank you. Hello, everyone, and welcome to our analyst and investor call on the acquisition of CSR. I'm with Sreedhar, our group CFO. You have our slide show on the website, so I will go slide by slide, and we will make sure that you have the exact number of each slide, one after the other. So we are very glad to announce the acquisition of CSR, which is a strong Australian leader in light and sustainable construction. This is truly a decisive step for Saint-Gobain to strengthen our presence on growing markets in Asia Pacific, and further reinforce our worldwide leadership on light and sustainable construction. So I'm now on slide number two. CSR acquisition has a compelling strategic rationale. The strategic rationale is extremely strong. The acquisition is fully in line with our vision as the worldwide leader in light and sustainable construction.
In terms of geography, CSR will allow us to develop our presence in Asia Pacific, and in particular in Australia, which offers very strong prospects of growth and profitability. This move is fully aligned with the dynamic evolution of our geographic footprint, which we have been doing decisively for five years in a row now, and which is at the heart of our Grow & Impact strategic plan. We are acquiring a recognized leader in building materials in Australia with iconic brands, outstanding building material products and customers' relation, that has consistently delivered strong financial performance year after year. We have a well-established relationship with CSR. We know well its management team, which is excellent, its values and culture, also its operating model and its strategy that are all very much aligned with ours. This will greatly facilitate integration and a smooth execution of synergy.
So it is truly a growth-driven acquisition, and I am very confident it will create high value for Saint-Gobain shareholders. I'm now on slide three. As I said, this acquisition is a significant milestone in the Saint-Gobain strategy. CSR purpose, building solutions for a better future, is very much aligned with our own purpose, making the world a better home, and their Australian leadership does perfectly match our vision of being the worldwide leader in light and sustainable construction. So combined with Saint-Gobain, CSR will further deepen and broaden its leadership in light and sustainable construction on the growing Australian market. Switching to slide four. Australia is indeed a very attractive, healthy, and growing market. The country has a very dynamic demographic trend, with the highest population growth rate among OECD countries, at three times the average growth rate.
This trend is supported by strong immigration, with the country population increasing by over 400,000 each year on the total population of 27 million people. Also, federal government and states are very actively supporting the construction sector to face this increasing demand for housing. There are multiple funds and programs, over AUD 15 billion, that are in place to accelerate construction, with the objective, notably, to build 1.2 million additional dwellings in the next five years. Also, to note that the latest amendment to the National Construction Code has been the single biggest change of this National Construction Code. It does impose strong requirements on energy efficiency going forward, and also health and safety for new buildings. Of course, CSR premium solutions in light and sustainable construction will perfectly address those more stringent requirements that are coming.
As a result, the construction output is growing faster than in many other developed countries. It's almost twice the average OECD rate and even faster than in the U.S. Expected annual growth for the construction output in the country in the coming years is around 3.4%. This growth is there to stay for multiple years, as it is the fact that the housing market is already undersupplied, and that it will have to answer to accelerating needs for housing. For all these reasons, you can see that Australia is a key growth market for solutions in light and sustainable construction. Let me start on slide number five with a quick overview of CSR activity. CSR core activity is the building product segment, which does represent more than 80% of CSR group EBITDA and provides complete solutions for residential and non-residential construction.
This is the strategic interest for Saint-Gobain. CSR also holds a valuable property portfolio. There is a lot of value in CSR property portfolio, which has been carefully reviewed in our due diligence. At least AUD 1.3 billion of this value will be monetized in the short to medium term, and also to note that CSR has a dedicated and very professional team doing it successfully with strong track record. Finally, CSR holds an indirect minority participation of 25% in an Australian aluminum business, on which Saint-Gobain is not a long-term holder and will explore its options going forward. Let me switch now to slide number six on CSR Building Products, truly an Australian leader in light and sustainable construction. As I said, CSR has very strong iconic brands providing both interior and exterior solutions, almost a mirror of Saint-Gobain, as you can see.
These brands all have leading positions in their markets. Their three main brands are number one in their market, Gyprock, for gypsum plasterboard, Bradford for insulation, and Hebel for facade solutions. They also have top number one or number two positions in acoustic ceilings, interior solutions, roofing, cement board, and others. All of this results in strong sales, with AUD 2 billion in building products and excellent profitability, with an EBITDA margin close to 18%. I can tell you that I have a very high respect for what the CSR teams have developed over the years under the brilliant management of Julie Coates, who took the helm of CSR four years ago in 2019, and I'm extremely pleased and excited to welcome them in the Saint-Gobain family in the near future. CSR has a track record of strong financial performance.
These two graphs, and on slide seven, these two graphs illustrate very clearly the consistent good performance of CSR Building Products. They have demonstrated strong sales growth of more than 6% per annum over the last 10 years, with an acceleration over the last four years to 8% per annum. EBITDA has grown even faster, at an annual rate of 12%, to reach an expected AUD 346 million at the end of their 2024 fiscal year, ending in March and including of their corporate cost, as you can see in the footnote. So as you see, CSR is delivering strong and consistent growth that we intend to fully support and pursue in the future. Moving to slide number eight. CSR has a broad and attractive exposure across residential and non-residential markets.
New residential single-family homes represent roughly half of their sales, with the other half being split between new residential multifamily, non-residential, and renovation. On the right side of the chart, you can see that CSR solutions cover the whole build cycle, from structure with Monier Roofing Solutions, for instance, to facade with Hebel solutions or Bradford glass insulation, and all the way to interior finishing with Gyprock gypsum plasterboard or Martini acoustic ceilings. I now move to slide number nine. To say that CSR has a compelling customer offering, thanks to a presence across all Australia. It has a nationwide footprint, which is extremely important in such a large geography. CSR manufacturing locations are well positioned to serve all major markets in Australia, from Sydney, Brisbane, Melbourne, and Perth. This is reflected in their sales, which are well-balanced across the most populated states of Australia.
They have established strong and trusted relationships with more than 12,000 customers, from builders and trades to architects and specifiers. They have also an excellent customer service, thanks to their best-in-class logistics, with 120 hubs across the entire country. Their technical and sales team work closely together to drive more and more specification on product sales. Now on slide number 10. Under Julie Coates' leadership, CSR has launched a transformation program in 2020, and has developed a One CSR strategy that is very much aligned with Saint-Gobain strategy... working synergistically together across multiple product lines for the benefit of a comprehensive customer offering and breaking the legacy silos. We know that this will trigger even more profitable growth in the years to come, since this is what we have been doing at Saint-Gobain since 2019 as well.
Under their purpose, building solutions for a better future, CSR delivers on five strategic priorities, which are also ours. Safety and sustainability are at the forefront of each of their decisions and actions: people, planet. Second, they develop customer-centric, innovative, and comprehensive solutions to bring more value to their customers. Third, they have significantly streamlined their organization. They have reorganized into a focused number of business units and improved the efficiency of their service with a centralized, integrated logistics capability. This is absolutely key to gain a competitive advantage in such a large continent as Australia. Fourth pillar, Transformation and Growth. It seems, at least for me, to ring the bell. Transformation and growth aims at profoundly changing and digitizing the value chain to create more growth opportunities for the group.
And for all of this, they can rely on the best teams, empowered and working together to drive a solutions approach. I know that they measure every year the employee engagement, which has been moving up year after year over the last four years. So Saint-Gobain will support 100% CSR in its transformation journey, and even more so, since it is brilliantly led by a very strong management team and leaders, which have a demonstrated track record of delivering consistently on their results year after year. Having implemented many of the same levers in our own strategic journey over the last five years, we are, I am personally very confident that this transformation program will bring further profitable growth for CSR. I'm on slide 11 now.
At the heart of their transformation is the deployment, the rollout of a full range solutions approach, leveraging CSR unique product offering in Australia. Putting their brands and products together, CSR designs innovative added-value systems for all types of residential or non-residential constructions. Thanks to their digital configurators, and we have put an example on the slide on the left side, customers can easily select the best system for their use case. This is the system, CSR system selector that you can see. CSR has a One CSR approach to the market, leveraging their full range offer to target large projects with active cross-selling. Thanks to their unified CRM, which supports all sales functions across brands, they are able to closely track their reach to large projects and increase their share of wallet with customers.
So this solution strategy is totally aligned with Saint-Gobain approach, and we have already seen in many countries of Saint-Gobain the value that it brings for our customers. Therefore, it is very natural that Saint-Gobain will fully support CSR solutions approach, which will fuel further profitable growth going forward. I'm on slide 12. Saint-Gobain and CSR, and maybe it's new for some of you, but Saint-Gobain and CSR have an established relation, which started with the licensing of Saint-Gobain glass wool insulation technology. For many years, it has been a kind of distant and rather low-key relation within the prior organization of Saint-Gobain. Since 2019, the cooperation has accelerated, with regular exchanges between Saint-Gobain and CSR teams at all levels and multiple visits on both sides. These exchanges planted promising seeds on several topics, from best practice sharing on manufacturing and supply chain, to marketing, new products, and systems development.
On the CEO to CEO basis, Julie Coates and myself have entertained frequent and high number of exchanges over the last four years, as well as reciprocal visits in 2022 and 2023. So as you can see, the link between CSR and Saint-Gobain is now well established. As part of this cooperation, several teams on both sides are already working together hand in hand to develop operational excellence, and this is why we have a very strong confidence on the execution of future operational synergies. The combination of CSR and Saint-Gobain will also greatly benefit CSR, thanks to Saint-Gobain global manufacturing best practices when I move forward and look at the future. With Saint-Gobain world-class manufacturing program, benchmarking between all our sites around the world on plasterboard, on insulation, CSR will have access to the best level of operations.
For example, on insulation, our global technology and industrial performance team has started to organize monthly best practice sharing sessions to deploy actions to improve energy, material efficiency, et cetera. We have also developed Industry 4.0 tools using machine learning algorithm that will optimize their process parameters in real time. On CapEx, for CapEx management also, CSR will benefit from Saint-Gobain global best practices and experiences. Just started to include CSR, for instance, in our global monthly benchmark of insulation plants, and identify precise upside potential on each step of the process. We do the same going forward on flat glass plants. So our heads of group manufacturing, insulation, gypsum, interior solutions directors, I've been there in recent months, and we also hosted some of the engineers in our plants in the last months, be it in Germany and in Denmark. Same for our supply chain experts.
Our supply chain experts have started some dedicated operational exchange on best practices. CSR will also have access to Saint-Gobain's unique experience in low carbon solutions, which is a new topic in Australia, and which will, I'm sure, accelerate in the coming years. Saint-Gobain is a recognized worldwide leader on sustainable solutions with the largest low carbon offer. For instance, we have been the first in the world with the low carbon plasterboard, the first with our low carbon glass, ORAÉ, and also new technologies to increase recycled materials in glass wool insulation manufacturing. So these proprietary and innovative solutions that bring added value to Saint-Gobain offer will be extended to CSR offer going forward. Now let me hand over the floor to Sreedhar, who will detail all the financials of this great operation for you.
Thank you, Benoit. As you explained, we have clearly identified synergies for a total amount of AUD 60 million. Out of this, AUD 50 million of cost synergies and an additional AUD 10 million of growth synergies, through opportunities to increase sales in Australia through high value-added solutions from Saint-Gobain worldwide offer. These synergies of AUD 60 million are expected to be secured by year three. Cost synergies, which represent over 80% of the total synergies, are expected to be captured through industrial performance improvement, leveraging Saint-Gobain's world-class manufacturing expertise, particularly improvements in yield, line speed, material management, energy efficiency, optimal process design, and equipment. All this also will bring more value in terms of capacity expansion through debottlenecking with a very minimal CapEx.
Purchasing savings will come by combining the scale of Saint-Gobain and CSR, and savings related to delisting, as CSR will no longer be listed on the Australian Stock Exchange. Coming to the revenue synergies, with an impact on EBITDA of around AUD 10 million, by expanding CSR's offer with Saint-Gobain's products, such as you have heard from Benoit, our value-added facade systems, our technical insulation, our acoustic ceilings, and our extensive construction chemical software. These synergies of AUD 60 million are clearly prudent, and with the number of other ideas that can be implemented in the medium term, we believe that we have a significant potential upside in these synergies. Slide number 15. On the growth side, there are many routes for further development. CSR is already a strong leader in Australia, with recognized brands and full access to all customers across the country and present on all sales channels.
As you have seen, CSR is already experienced in a solution approach in all and also doing cross-selling. On the other hand, we, Saint-Gobain, are a worldwide leader in the light and sustainable construction, with the most comprehensive offer of recognized products. We are the front runners in low carbon offer and thought leaders on sustainability-driven initiatives. Leveraging Saint-Gobain's worldwide portfolio of innovative products and solutions, CSR will be able to generate significant additional revenues. For example, with our innovative, high-value added, low-carbon facade solutions, or leveraging Saint-Gobain's existing presence in construction chemicals in Australia, with two sites of GCP in Melbourne and Brisbane, where the Olympics will take place in 2032, to develop a full range of construction chemicals. Now, moving to slide number 16. When you look at the transaction overview, we are offering CSR shareholders a price of AUD 9 per share in cash.
representing a premium of 33% on a 1-month undisturbed volume weighted average price. The offer price implies an enterprise value of AUD 4.5 billion, and represents a multiple of 10.7x of Group EBITDA, and 7.9x on building products EBITDA, if we include the AUD 60 million synergies and also the AUD 1.3 billion monetization of property. All in all, this is expected to create value by year three, following the closing, and to be the EPS accretive year from year one. Transaction will be fully financed in cash and will have a limited impact on our leverage ratio of 0.3, which will remain below our net debt EBITDA target range. In terms of transaction process, the definitive agreement has been signed, and the business combination received unanimous approval from the CSR and Saint-Gobain boards.
Closing of the transaction is subject to customary closing conditions. It is expected to close in H2 2024. Now I will pass on the floor to Benoit to make a concluding remarks.
Thank you, Sreedhar. So on slide 17, which is our last slide, again, this move is another decisive and logical step for Saint-Gobain in our profitable growth trajectory to strengthen our worldwide leadership in light and sustainable construction. We are establishing a leading position in the growing Australian market. CSR strategy is fully aligned with our comprehensive solutions approach. I'm very confident that this growth-driven acquisition will create high value for both our shareholders, our customers, CSR customers, thanks in particular to a very strong local team and management. Both our teams and CSR management are committed to seamless integration of CSR into Saint-Gobain, so I see no execution risk whatsoever. I'm eager now to welcome, in the coming months, all CSR teams and employees within Saint-Gobain to push our fruitful collaboration even further, and to continue their success story in Australia and New Zealand.
Thank you for your time, and we are now happy, Sreedhar and myself, to take your questions.
This is the conference operator. We will now begin the question and answer session. Anyone who wishes to ask a question, may press star and one on the touchtone telephone. To remove yourself from the question queue, please press star and two. Please pick up the receiver when asking questions. The first question is from Ebrahim Homani with CIC. Please go ahead.
Hello, Benoit and Sreedhar. Thank you for taking my question. I have three, if I may. The first one is about the level of margin. How do we explain-
Could you speak a bit more slowly or louder? Because it's very-
Yeah, sure.
Very echoey. So
Yeah, how... The first question is: how do you explain the level of margin? The second question is about the Australian market. Are there other opportunities to consolidate the market, or is the market still consolidated? And my third question is about the regulatory environment in Australia. Is there any environment that support the activity in Australia as you have in Europe? Thank you.
What is the third question, sorry, on Australian government?
About the regulatory environment.
Ah, okay. Sorry. So maybe I will start with this last one. There is a foreign investment regulation approval that we will file. We don't expect any particular difficulty on that, so this is the main regulation approval. So again, we don't expect as we are not in Australia, we don't compete on market share, so there is no difficulty on the antitrust side. So that's one area, and we'll do that in the coming days. Your second question was on the Australian market. They have a leading position as number one in several of their product lines, be it plasterboard, be it insulation, acoustic ceiling. So I don't see further acquisition in that space, but of course, they will grow organically with new products, with Saint-Gobain innovation, with all the benefits of a broader product offering.
On the other side, there are multiple product lines. If I think of construction chemical, if I think of, you know, mortars, for instance, they have on some of their facade solutions, they put some renders. Of course, we can come to Australia with our own render, so there will be multiple opportunities. I think on the construction chemical space, we have other ideas, for instance, on ceilings, we have ideas to grow on the solar control glazing. So many opportunities to add SKUs and product lines, but on their main existing business of plasterboard insulation, if I take those two, they are already a significant leader, and there is no space for acquisition. But there is space for organic growth to capture the fantastic growth on the Australian market, which is ahead of us. The first question was on the level of margin.
What do you mean, their level of margin?
Yeah, their level is quite high.
It's a good, healthy margin at, you know, 18% EBITDA. But, you know, within Saint-Gobain, we have also the experience of countries, even on a large scale. If I think of North America, if I think of some of our positions which are very strong in the U.K., which is also an island, although smaller than the big island in Australia. So those margins are healthy, and, they are not at the limit. And, we intend, and, I can tell you the strategy transformation program that the management team of CSR has started to put in place will bring further benefit in terms of logistics, in terms of technology on IT, digital, in terms of customer solutions. So I'm confident that there will be further profitable growth and further improvement going forward, even without the benefit of Saint-Gobain synergies.
Thank you. Thank you very much.
The next question is from Brijesh Siya with HSBC. Please go ahead.
Hello, gents. Good morning. I have two questions. The first one is on the aluminum assets, where CSR has 25% stake. Could you tell us what's the kind of value of that asset would be on a market valuation basis, if you have any rough estimate at this point in time? And the second one is on the synergy part. You talked about AUD 60 million of synergy. If you could tell us, how much is the kind of integration cost or the cost to achieve those synergies, please?
Sure. So I will take the second one, and Sreedhar will answer to you on the first one. You know, we don't intend to have any cost cutting, headcount reduction, because we are not in Australia, and CSR is a well-organized organization. So there is no implementation cost going forward. It will be about operational excellence, debottlenecking, a bit of CapEx, but we need to deliver all this. It's more best practice sharing, additional product lines, if I think of the growth. Divesting, there is no implementation cost to do that. Purchasing is basically taking all the soda ash, paper, and the main raw materials where we can leverage the scale of Saint-Gobain. So short answer, no implementation cost for those synergies. Sreedhar, you-
Coming to aluminum, we have not done any formal evaluation of value, market value or anything like that. But in any case, you know, Saint-Gobain is not a long-term holder of this kind of assets. We know that CSR is working along with the main shareholder, Rio Tinto, on a repowering of this plant with renewable energy. We are going to review with the CSR management our role in aluminum and our interest moving forward. So I think it's premature to talk about it. It's very clear that we would take this thing.
In any case, you know, at the end of the day, the valuation, what we have offered is for the total company, and any movement we give, it will reflect on the purchase price allocation, when we do get into those kind of details.
But I can tell you, you know, we understood that the rationale for Saint-Gobain is the building product. So in our offer, the valuation is not the aluminum valuation that did drive our attractiveness and our move on CSR.
But, and just to supplement on the property, one which you are planning to sell. And you talk about it's kind of short to medium-term opportunity of AUD 1.3 billion. Is that the all of the properties available, or it's kind of what you see at this point, and there's probably much more to come, or rather a few more to come, which could value it a little higher?
You know, at this point of time, the evaluation we have done is, shows that it's one point, at least AUD 1.3 billion is the property value is available. And the majority, majority of them, we should be able to do it in a short period of time. You know, at the end of the day, it's a freehold land. Things which are freehold, we would try to monetize, and that would be our priority. And this whole value creation criteria we have is three years, and that's a ballpark period that we need to keep in mind.
This has been carefully reviewed with multiple experts during the due diligence.
Yeah
... independent expert during the due diligence process. So we are comfortable, and as I mentioned in my talk, CSR has a very professional team dealing with that, with high track record in order to maximize the value. And you know, what we say that we will realize this value within the year three valuation that we have put as a target for Saint-Gobain, meeting totally our financial criteria.
Awesome. Thank you very much.
The next question is from Paul Roger with BNP Paribas. Please go ahead.
Good morning, Benoit, Sreedhar, and team. Hope you're well, and thanks for taking the questions. I'll go back to the synergy target. I think, Sreedhar, you basically implied that AUD 60 million is conservative. Just checking, you actually believe in the CSR EBITDA margin can go above 20% when they're realized? And is it possible to give us some sense of what the actual synergies might be if everything goes to plan, just so we can sort of understand the upside potential? And then the second question-
Sorry, could you repeat the second part of your question?
Upside potential.
Upside potential.
Yeah, yeah, just 'cause I mean, the comments suggest it was conservative. So I guess I'm really asking, what could the number be if everything goes to plan? And then the second question was really on your wider M&A strategy. I mean, clearly, you've invested a lot in North America, in the U.S. and Canada, now you're doing Australia as well. And I guess my question really is: what does that say about your view on the outlook for Europe?
So I'll take the second, and Sreedhar will take... We try to follow the Commonwealth, sir.
I'm pleased to hear that.
You didn't, you didn't mention India, but we have been pretty active also. No, but, you know, we are decisively moving into high growth markets, and I'm happy to say that compared to Saint-Gobain five, six years ago, where we had more than 60% of our results in Western Europe, now we have two-thirds in high growth markets, be it North America, emerging markets, Asia, and now Asia Pacific. So I think it's very important for Saint-Gobain to accelerate the growth, and this has been the number one axis of our decisive capital allocation, high growth markets on the geographic standpoint, and we are there after U.S., Canada. But, you know, we still have opportunities in U.S. and Canada going forward.
Emerging markets such as India and Australia, because it's driven by growth, population, good geopolitics, which is very important in those days, and wealth of the population. So that has been one important axis of our strategy. The other one, you know it, it has been our growth, also where we still have opportunities to do more on construction chemicals. So I've been, we have been very consistent on growing impact over our M&A and also CapEx allocation towards higher growth market. I'm confident about Western Europe. It's more renovation driven, and as I said several times, renovation, we don't need... Sorry, in Europe, we don't need additional assets. We have a lot of teams, great teams. We have all the solutions, the products, the manufacturing footprint, the logistics hubs we need. So it's more about share of wallet. It's more about accelerating the solutions towards a renovation.
So Europe, we have a very well-established presence because of history. It's all a matter of more organic growth, share of wallet, and reach the mix of our solutions, and this is what we are doing, notably towards the renovation market, which, as you know, is the most important one in Europe. So it's not any negative read on Europe, but in Europe we don't need significant moves in order to step up, our leadership.
So Paul, you know, coming to the potential upside, it's. I think the biggest advantage that we have is that we know their operations very well. I think we had this, by virtue of having this technical, licensee arrangement, I think there have been n number of dialogues between the different teams. So we know, that when you talk about the material efficiency or manufacturing efficiency, there are a lot of nitty-gritties, and it takes time, you know, and these things will happen step by step. We are talking about, they have more than 30 industrial sites. So, what the figures we are quoting is for the first three years to be aligned with our value creation criteria.
But the number of ideas that we have got in the plant improvements, also the market, new solutions that we can introduce to the market, I think this all will happen over a period of time, and that's why we believe that the potential upside is pretty significant in the, in the medium and the long run.
You, Paul, you know our focus on our success on the margin upside within Saint-Gobain. I'm not shy on having businesses above 20% EBITDA margin. This is where we are with Chryso. This is where we are in the U.S., which is a large business. So being above 20% EBITDA is totally within reach, and we have multiple examples within Saint-Gobain where we are there already. So again, with the great drive of the CSR team, the great transformation program that Julie Coates and her management team is rolling out, I'm confident that we can continue to drive the margin of CSR going forward.
I think that's also, that has also been a significant change which we have brought in the last five years.
Within Saint-Gobain.
Within Saint-Gobain.
That's perfect. Thank you very much, guys.
Thank you, Paul.
The next question is from Cedar Ekblom with Morgan Stanley. Please go ahead.
Thanks very much. Morning, everyone. I had a question on the asbestos liabilities within CSR. I believe that the last audited number was around AUD 180 million or AUD 190 million. Are you going to have to absorb those liabilities, and have you done a third-party assessment of that? Thank you.
Thank you, Cedar. Yes, you know, coming back to the topic on asbestos, so it's a very old issue for them. We will support CSR going forward. In a very professional way, they have managed this topic, and we will continue to do what they have done very well. They will continue to meet their obligation in a fair and equitable way, as they have done for many years already. On the financial side, the topic is under control and provisioned, even if you look at their website with a cautiousness on their provision. So yes, we had external assessment with actuarial people in depth of that over the due diligence, you know, and if I take another angle, so it has been well assessed, covered, reviewed with external experts.
If I take, you know, the last five years, for instance, on their own investor call, if you read their transcript, there has not been a single question being asked by their investors in their five, last five years of investor call. But going forward, yes, it's part of CSR. They have done it, and managed it very well. The provision is there, even with some cautiousness, and it's under control and very well managed, and we intend to do the same going forward.
The next question is from Yassine Touahr i with On Field Investment Research. Please go ahead.
Yes, good morning. A couple of questions. First, when you're acquiring new businesses, I think in the autoclaved aerated concrete, in cement boards, in concrete roofing, concrete tiles, what do you think about those assets? Could you run those assets and potentially develop those assets elsewhere in your portfolio? And could you also spend a bit more time explaining the solution approach for CSR? Where are we now in terms of sales that are sold as solution, and where do you want to be in the medium term? And then third question, I'm not sure if I understand very much the aluminum business, and I think it made a loss in the last 12 months.
I'd just like to understand what are the drivers and is there anything that we could expect for the next 12 months that could make this loss turn into a profit?
Yeah. So I, I will take all your different questions. On the different product lines, you know, as you know, we are organized by country, and it's actually a merit of our new organization, I would say, for the last five years, that this acquisition is made possible. To think of the prior organization of Saint-Gobain, we'd have to split, break CSR by product line. It is a natural fit to the country organization of Saint-Gobain, and a perfect fit, and a very seamless integration. Why I'm saying that? Because we have to look at the offer, which is relevant for their local market, and they are leading positions built on structure elements, like roofing. And, you know, okay, roofing is a slightly different product for them in Australia, but it's our largest business in the U.S.
We have a roofing business in Brazil, so we are used also to deal with leadership positions on roofing. If I take cement board, we have an offer of cement board across Latin America, in Vietnam. We just bought a business of cement board in Malaysia. So those businesses are well known to Saint-Gobain, and we have also a small offer in Europe on cement board. So all those businesses are well known. And if I take the aerated concrete, which you alluded to as well, you know, when I was in Australia a year ago, you know, I said, "Well, you put some renders on top of it." So they don't use it for structure, they use it for cladding. We are used to have different materials on cladding, you know, what we have in the U.S.
On this cladding, when you put renders, for instance, it's quite natural for us at some point to add the renders of Weber, or maybe we'll call it Hebel or CSR render going forward in Australia. So it's part of the enrichment of the offer, which has to be adapted to the local market, and I trust the CSR management has done a very good job to have the right offer in terms of the Australian market. Now, on the solution side, though they have entertained the same journey as I've done within Saint-Gobain, and it's interesting to note that Julie, she came on board in 2019, so we connected quite fast at that time, and we went through the same journey, even to the point where, you know, their program is called Transformation and Growth. It used to be Transform and Grow for us.
So the journey, you know, it takes time. First, to break the silos. Second, to have a common sales team for prescription, which they have done. Third, to put behind enablers on IT and digital, which they are going to invest in. And for instance, recently, we had some exchange between IT people on, their development to have, IT enabler tools to support customer solutions. So all this intimacy is there. So I'm very confident that their drive, which they have started on solution with reorganization, with common logistics, will continue to bear fruit.
So like in Saint-Gobain, I will not tell you they are to 18.2% of the maximum potential and solution, because it doesn't make sense to look at this kind of precise figure and to have a micromanagement reporting on that, but they are moving, and this is why they outperform the market. When you see that growth above 8% in the last three years, thanks to the transformation journey, it's a bit what we have seen in many countries of Saint-Gobain in terms of outperformance, thanks to our solution approach. So I totally back it, and we have exchanged a lot with Julie on what it means. I think all her team is behind that, and it will continue to bring big benefit going forward.
It's a journey, and the enrichment of the offer that Saint-Gobain will bring will be part of this high added value solution going forward. On aluminum?
On aluminum, when you go back to the history, you'll see that actually there's been a good, well-managed, profitable business. This 2024, I mean, their financial year, March 2024 - March to April 2024, was an exception, where they saw the volatility was pretty high and the hedging, what they did was not in line with the market, conditions, and that's why they saw, an exception of, loss in this year. But I think they, they again expect now things to improve. That's what the market consensus also show... that the prob-- the, the situation, current year situation will continually, will, will change.
You know, as far as Saint-Gobain is concerned, I must tell you that, you know, when you look at aluminum business at Saint-Gobain group level, this is pretty, very small, and we will not consolidate in our books. Because, you know, it's an indirect minority shareholding of 25% stake, even though there won't be any impact on the local statutory books, but as far as Saint-Gobain group is concerned, this is not material, and this will be not consolidated in our results. So the volatility will not have an impact on our team.
Thank you very much.
Thank you.
The next question is from Tobias Woerner with Stifel. Please go ahead.
Yes, good morning. Thanks for taking my questions. The first one is about your aerated concrete. How much revenue actually you have in that business or what percentage of sales is it? When I look at the data I have in front of me, the insulation and bricks businesses, not bricks business, aerated concrete business, I put it roughly AUD 450 million or so, but a bit more insight would be helpful. On that note, aerated concrete, is this then for you a one-off, or would you be considering the products on a global basis as well? And then thirdly, just lastly, property, the property you've got at your disposal, AUD 1.3 billion under your assumption, does it also support the ongoing business?
Also, are there... In other words, are there some properties which you cannot sell, because you need them for your ongoing businesses? Thank you.
Thank you, Tobias. So keep in mind that for CSR, two-thirds of their building products in sales are in gypsum and insulation. In interior, the-- we don't have exactly the same definition between CSR and Saint-Gobain. If you take the Saint-Gobain definition of interior solutions, so gypsum, acoustic ceilings, and insulation, it's two-thirds of their sales, and it's for CSR three-quarters of their EBITDA. If I take the Hebel aerated concrete business, it's for CSR 5%-7% of their sales. It's not, you know, I, I, I should not disclose figure that they don't disclose, but it's well below 10%, but it's a growing business. Interestingly enough, they don't use it like we use it in Europe in terms of structure. They use it in terms of cladding, which is quite interesting.
So, you know, in Europe, on the structure side, we have never been very convinced, on the strategic side, in terms of interest of that type of product on the structure side, because of, you know, what we prefer to do in other materials. They use it in cladding, so I think it's a different story, and they have had a good growth, a good profitability, so I think it's interesting to grow that. Whether we will expand it in other countries, that remains to be seen. It's not in the plan, it's not in our synergy outside of Australia, but again, something to be reviewed going forward. Personally, in Western Europe, I'm not convinced, it's a great business to invest in.
It's a lot driven by new build, and as you know, Europe is driven by renovation, and you are not going to change the world just to put aerated concrete. So, I have a different view on that for structural elements in Europe, but in Australia it has been a good, growing, cladding, facade solution, interesting business. On property-
On property, Tobias, the bulk, the bulk of them are freehold properties, so there are no constraints to monetize it. So, we will do it. As Benoit said, I think we will also make sure that we do it in a right way to maximize the value. So I think the three years is the window which we have kept, which is consistent with our value creation criteria.
Yeah. I should add that what I try to understand is whether they have any interaction with the ongoing businesses, i.e., whether they're used for the building products.
The bulk of it in the AUD 1.3 billion is freehold. After that, the reason why it's not going to be monetized in three months is that we have some reasoning. We have a bit of investment in order to maximize the value, and their team is doing a very good job on that. We will continue to support what they have been doing, but it's freehold for the vast majority of it.
Mm-hmm. One final question, if I may. I was surprised by the low renovation exposure in Australia and New Zealand. Is that something you'd like to expand going forward?
I think yes. The short answer is yes. The low percentage on their sales, it's not because we are not interested into it, it's because so far the Australian market has been driven by new housing, population, immigration, et cetera, et cetera. I think it's a growth potential going forward, and notably, what I mentioned regarding the new National Construction Code. It's a very important element because they are driving sustainability, they are driving energy efficiency. It was again done in 2022, just a year ago, and if you take the history of Australia, it has been the single biggest change of their National Construction Code. So it bodes well, and when we interacted with CSR teams, clearly the number one factor should be to increase the thickness of insulation in homes. And if you were to talk to...
I did that with a few of our European colleagues who went to Australia, because we have some Saint-Gobain managers who have spent some time at CSR in the years. They will tell you that even a guy who is in the Nordic right now, the only area in the planet where the codes at home was in Australia, because the codes were pretty low in past years and now are improving. So I think it bodes well for renovation going forward. And that's a potential upside that we have not factored into our assumption, but which I think is going to come for Australia.
Thank you. Thank you very much.
The next question is from Yves Bromehead with Societe Generale. Please go ahead.
Good morning, everyone. Thank you for taking my questions. My first one, I just wanted to come back maybe on the Australian outlook, especially as we're now getting exposure to the new builds segment. I think if we look at the leading indicators, clearly it's quite volatile and in a negative territory. So I just wanted to maybe understand what's your near-term thought from the on the Australian outlook, given the CSR record high margin at the minute. Second point on property. I think a lot of CSR property portfolio include industry and commercial buildings. So I just wanted to know how liquid is this market in terms of the negative at this point in time, given the rhetoric that we hear across the world?
And also I was curious to understand why you're valuing it at least AUD 1.3 billion when they've valued the asset at AUD 1.5 billion. What's the discrepancy there? And finally, on aluminum, coming back to what you said with regards to the partnership with Rio Tinto, is Saint-Gobain also liable for any future CapEx in aluminum? Thank you very much.
So thank you. I will take number one and number three, and Sreedhar, I will take number two. As we said, you know, Rio Tinto is the majority owner of that at 51%, so this is their business. As we said, you know, we are going to explore our options, because we are not a long-term holder of that business. Rio Tinto is in the process with the other stakeholders, Hydro, and indirectly CSR, on the repowering process towards renewable energy for this plant. As part of that, you know, there will be some ongoing maintenance investment, but nothing very significant. So that's the plan going forward. We have, we are going to explore our strategic options.
Rio Tinto is in the driving seat because that's their business, and we will work together with them and support what CSR has been doing. But I stated clearly, you know, the long-term position of Saint-Gobain on that business. Coming back to Australia on the near-term outlook, you are right to say that we expect, you know, the next 12 months to be a bit of a plateau with upside and downside. Detached approvals have been slightly down, other parameters are slightly up. Clearly, we assess that, and it was part of our ongoing discussion and assessment. We think the next 12-18 months may be on the plateau. The good thing that there is a high backlog between starts and completion, which again, we have seen in similar countries, in Canada and the U.S.
So the backlog of activity for building materials manufacturers such as CSR is significant, and that's going to help going forward. The approvals, now that the interest rates are on the plateau or slightly decreasing, should go progressively in the better direction than the negative one. And after that, we expect quite a strong recovery in 2025, maybe in the second half of 2025. So a bit of a near-term plateau, which we have factored in our business plan. Very confident about a strong recovery and acceleration in the second half of 2025. And in the meantime, a good balance between backlog of you know, job sites that have been started but not completed and new approvals.
On top of this, for CSR, keep in mind that they are in their transformation journey, which brings benefits above and beyond the current trading. So we are confident about their, you know, results going forward, including on the near-term, activity and margin.
Yeah, so coming to the property, Yves, you are right that they had announced the valuation for AUD 1.5 billion. And in the recently, they just sold a part of property which actually they realized close to AUD 200 million, and that's why we have now taken the net figure, AUD 1.5 billion - AUD 200 million. You know, this property is an interesting, you know, it's a potential monetization benefit that one can look at it. And Saint-Gobain is very clear that this is something, is not our business to develop the property, but at the same time, we are also not going to leave a lot of money on the table. It's a property which is in a good location.
There is a lot of development happening in Australia, and we believe that we would be able to monetize it with at least AUD 1.3 billion, and we will do it in a smart way, making intelligent trade-off. Certainly, the time limit which we have defined for ourselves is the three years, because that's the nice alignment that we bring in for the value creation.
You know, all these sites, and we are not talking about hundreds, but dozens, they are located close to the big cities of Melbourne, Sydney. In fact, one large site is close to the new Sydney Airport, which is about to open in two years from now. So you can think that in the next two, three years, this large piece of land, which is freehold, will get a high attractive value. So those sites have been carefully valued by independent real estate experts in Australia, multiple sites.
Thank you very much.
The next question is from Gregor Kuglitsch with UBS. Please go ahead.
Hi, good morning. A couple of questions left from my side. So, in terms of the leadership of CSR, I mean, you spoke very highly of the current management team, but have you secured their ongoing services, so will they continue to lead that business? That's the first question. The second question is, we spent some time on aerated concrete. We haven't spoken much about bricks and tiles. That looks a little bit odd for you. I appreciate you saying you're flexible. Just wanna get your thoughts on those product categories and how material they are. And then the final question you say is, you're gonna exceed your cost of capital. So for this, in Australia, what kind of WACC are you assuming to sort of get us to a sort of a value creative point? Thank you.
So I will take the first one. So, across the board, CSR leadership team is very strong. Not only Julie Coates, the CEO, but also the different managers, be it on supply chain, be it on, gypsum, interior solution management, be it on insulation, et cetera, et cetera. So it's a collective group which is strong. We had very positive interaction over the years. There are things I cannot say, and I should not say because, you know, we are in this offer. The offer is a fair price for the shareholders of, of CSR, and Julie Coates, like the board of CSR, have, have done a very good job to, value, their company.
Those discussions will happen in a later stage, but I can tell you the fit culturally on multiple sides, deep into the organization is very positive. So, again, it's like within Saint-Gobain, it's a teamwork. The team is very strong within CSR. I've witnessed how well they interact together as a team, and we have had multiple interaction with different managers. Again, I've entertained personally over the last four years, a very strong and rich relationship with Julie Coates. But again, below, they are also on top of that, multiple strong managers. If I take the side of Saint-Gobain, we have more than 50-60 people who have interacted with their team.
So, this leadership team going forward will support it, and I'm very confident that they will drive the further the success of CSR in Australia and New Zealand. For bricks and tiles, again, I trust the management of CSR, but what is relevant for the offer to half the Australian customers, if I take bricks and tiles, I think it's a bit below 20% of sales. So that's where it stands on the top picture of CSR building products. They have leadership positions. So after that, you know, we'll have to go into the details of whether they need to invest more in one area, relocate one plant to get closer to the customers, improve the logistics, da, da, di, da, da, da.
But it's part of their portfolio, and they have done a good job to grow their different product lines in the past, and I, I'm sure they will do the same going forward.
They are also very focused on profitability. I think that's another good common point, that will also drive to make sure that we sharpen the focus on the business.
On the what?
On the WACC, you know, we are taking at the group WACC, 7.7%. And anyway, the large part of the acquisition will be funded by the group. And since we don't have a big presence in Australia, and it's a country which is a growing country, which very limited risk.
Okay, so 7.7% post-tax is what you're planning for, basically, by yesterday. Okay,
thank you.
The next question is from Arnaud Lehmann with Bank of America. Please go ahead.
Thank you very much. Good morning to everybody. Just a couple of follow-ups on my side. Could you discuss the sales channels of CSR, the share of distribution, the share of direct sales? And related to that, would there be opportunities to increase the penetration of other Saint-Gobain products, maybe from factories in Southeast Asia, into Australia? And the follow-up on the synergies, could you come back on the purchasing synergies? Are there any kind of raw materials that are bought on a global basis, either in insulation or in gypsum, that you can leverage? Thank you.
Yeah. So, the split of their sales channels, you know, it's commercially sensitive information, so I will not, I will not, elaborate more on that. What is interesting is that they cover all the channels, be it do it yourself, for example, Bunnings. Bunnings is the kind of Home Depot from Australia. You may know or you will check with public information, the chairman of CSR is the former CEO, a very, very successful CEO of Bunnings for multiple years. Bunnings is do it yourself for them in Australia. They have also biggest merchants across the board. They have direct sales towards, you know, multi residential, multifamily residential and, and large projects. So they, I would say, cover all the different channels.
One interesting point, and I'll mention that because it's a uniqueness to CSR. They have those 120 trade centers, which are dedicated to their products, which is a way to have a great logistic service to their customers. So they have, frankly, a very well-designed and structured routes to market across all Australia. So of course, we will, together with them, and it's part of our growth synergies, we will leverage those channels for additional product lines of Saint-Gobain. I can tell you that CSR, today, if I'm correct, they are almost sold out on glass wool insulation. We intend to build after our acquisition of insulation in India. We built stone wool, we built glass wool last year. We are about to test and select some SKU from India to Australia to help them accelerate the growth.
We have decided to invest in the second glass wool plant in Chennai, in India, to service Australia among other Southeast Asia markets. So there are plenty of opportunities that we started to discuss that will bring additional benefits to CSR customers, and where we will leverage some of our platforms. There are also some specialty gypsum products that we tested with them out of Thailand and Vietnam. There are some acoustic ceilings. I met I discussed that with Thierry Bernard, our head of Construction Chemicals. You know, we were in Australia two weeks ago, not of course, to discuss any of those confidential matters, but we have two sites, as Sreedhar mentioned, on Construction Chemicals. I take the example, you know, we accelerated the rollout of Chryso in India by putting more sites, mixing units in Saint-Gobain sites.
We can think of using some of the 30 manufacturing locations of CSR in Australia to put additional mixing units for construction chemicals and accelerate their growth. We can think of additional product lines of renders, I mentioned it, towards the cladding of Hebel for the benefit of Australian customers. So there are plenty of ideas and opportunities where we will benefit from the extended footprint and logistics of CSR, and it will bring benefits in terms of added value to our Australian customers.
I can tell you, Thierry Bernard is very excited about this acquisition, so I think he already identified plenty of things that he wants to do in Australia.
On purchasing new?
Yeah, on purchasing, I know, yes, we do have some common raw materials like soda ash, you know, paper for gypsum. We can certainly look at many of the things. You know, we are talking of just AUD 10 million synergy. When you look at some of the categories, we believe that we should be able to get around mid- to high-single-digit savings on key materials that we are using, both in gypsum and insulation manufacturing.
Very good. Thank you so much.
As a reminder, if you wish to register for a question, please press star and one on your telephone. For any further questions, please press star and one on your telephone. Gentlemen, there are no more questions registered at this time.
Thank you very much again for your time. I'm extremely confident about this very important step in our Grow and Impact journey with a worldwide leader in light and sustainable construction around the world. I'm extremely excited also to work together with the CSR teams, which we have understood are excellent. There is a very natural cultural fit. We know each other well, and there is a lot that we will do together going forward. I'm here to welcome all the CSR teams and employees. I'm going to be in Australia in two weeks from now. I'm going to talk to their senior management team together with Julie tomorrow, and very eager to push our fruitful collaboration to the next level.
As a reminder, but I'm sure you all have that in mind, we publish our results on Thursday evening, and we will reconvene together for our investor call on Friday morning. So, thank you very much for your time, and we will see each other on Friday morning. Thank you. Have a great day. Thank you. Goodbye.
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