Deal Moves Rugby Into Forward Position

Sydney Morning Herald

Thursday April 1, 1999

By ANTHONY HUGHES

Adelaide Brighton's long-awaited restructuring plan will see the emergence of the UK's Rugby Group plc into the mainstream of the building materials sector after a low-profile presence in Australia for more than 40 years.

Rugby has been a quiet participant in the Australian cement market since 1955 when it launched into the West Australian market with a single kiln plant at Munster.

In Sydney yesterday, Rugby's UK-based executive director, Mr Mike Sharp, said the AdBri restructuring - which will see Rugby emerge with 55 per cent of the company after selling its $230 million Australian operations into AdBri - would allow the combined group to develop an internationally competitive position in the cement and lime market. "Our aim is to use Adelaide Brighton as the primary vehicle for investing more in the region," Mr Sharp said.

The merger will bring together 10 plants across Australia, but the focus of the company's efforts will be on producing clinker (the first-stage product in making cement) from AdBri's state-of-the-art Birkenhead plant in South Australia, and lime from Cockburn's Perth facilities.

Concurrently with the AdBri deal, Rugby itself is embarking on a plan to focus its activities on the international cement and lime market. Rugby is already in the process of streamlining its international operations with the proposed sale of its joinery (door and windows) operations, including the Australian business Stegbar. In the UK, it is one of three major players in the cement market but is dwarfed by the largest player, Blue Circle. Rugby's market value of about $1.9 billion makes it smaller than CSR, Boral and Pioneer.

Mr Sharp said European and UK investors saw the Australian building materials market as highly cyclical and vulnerable to Asia's woes, when in fact the economy had performed well despite the recent turmoil.

He said while the merged company's vulnerability to imports in WA was not a major issue, it had a strong competitor in Mr Len Buckeridge's BGC group. Exactly how competitive BGC is will prove important as the chairman of the Australian Competition and Consumer Commission, Professor Allan Fels, assesses in the next month whether to sanction the merger.

The deal received a subdued market response as AdBri readies to launch its 70c-a-share rights issue to fund the purchase of Australian Cement's 49 per cent interest in the Adelaide Brighton Cement joint venture. AdBri fell 1c to 82c.

JB Were & Son's analyst, Mr John North, said he was recommending AdBri as a hold, though there was potential for Rugby to take full control of the company, particularly if it did not "fire" market interest.