Eco Investor September 2016

Core Securities

Metro Performance Glass Acquires Australian Glass Group

New Zealand's Metro Performance Glass has entered the Australian glass market and added to its environmental glass business with the acquisition of Australian Glass Group (Holdings) Pty Ltd.

Australian Glass Group was founded in 2008 and is now the third largest glass processor in Victoria and New South Wales. It has glass processing plants in Melbourne and Sydney and these supply double glazed glass units, custom laminates and toughened safety glass for residential and commercial projects in Victoria, New South Wales, Australian Capital Territory and Tasmania. Sales are mostly for new houses and alterations and additions, with the company having limited exposure to the apartment market.

Metro Glass chairman Sir John Goulter said the acquisition is a significant strategic step for the company and the board is confident that AGG and the Australian glass processing market are an attractive long term growth opportunity. The penetration of double glazing is low for a developed country but is beginning to gather momentum in Victoria and Tasmania where Metro estimates double glazing accounts for around 30 to 50 per cent of windows in new construction.

In addition, the Australian market is highly fragmented and the majority of glass processing is done manually; service standards are below those of New Zealand; and Metro Glass' expertise is highly transferable to Australia.

Sir John said AGG has a strong management team, so the Metro Glass NZ management team can remain focused on building the NZ business where the market is strong.

The purchase price is $43.1 million on a cash and debt free basis. The consideration was debt funded, and increased Metro Glass' total interest bearing liabilities to about NZ$100 million.

AGG is generating annual sales of $45 million and earnings (EBITDA) of $8 million. The acquisition will be earnings per share accretive from the first year.

Metro Glass' chief executive Nigel Rigby said the company has studied the Australian glass processing market for some time and sees a number of opportunities, particularly for environmental glass. "In particular we see double glazing penetration gathering significant momentum in cooler climates like Victoria in the short to medium term. Metro Glass produces significantly more double glazed units week to week than any other player in Australia or NZ and has developed considerable manufacturing and distribution core competencies, which combined with our expertise in processing high performance glass will benefit the AGG business and its customers."

That's good news for local environmental investors and environmental consumers.

Metro Glass said it plans some near term capital expenditure so AGC can benefit from specific market opportunities. It did not give further details but presumably these relate to double glazing and high performance glass.

He said AGG has a reputation for excellent customer service, and provides Metro with the opportunity to get a scale position in its prefered states of Victoria and New South Wales, while its focus areas, detached dwellings and alterations and additions, have a relatively stable growth outlook.

Investors liked the deal and Metro's share price has risen to a post float high of $2.05. (ASX: MPP)


Above: The double glazing market in Australia.
Below: A product and service comparison between Metro Glass and Australian Glass Group.

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