Bailey Metal Products Limited (SGO) Earnings Call Transcript & Summary

Good afternoon. This is the conference operator. Welcome, and thank you for joining the Saint-Gobain conference call on the acquisition of Bailey in Canada. [Operator Instructions] At this time, I would like to turn the conference over to Mr. Bazin, CEO; and Mr. Sreedhar, CFO. Mr. Rayfield, CEO, North America. Please go ahead.

Thank you. Hello, and welcome to our analyst and investor call on the acquisition of the Bailey Group companies. I'm with Sreedhar, our CFO, and also with me from the U.S., Mark Rayfield, CEO of Saint-Gobain North America. Most of you know Mark well already. So I'm very pleased to announce this acquisition of a leader in metal framing solutions in Canada. It is a further step for Saint-Gobain in our profitable growth trajectory in this country and in North America, which has been, as you know, a priority for growth and capital allocation in the last 5 years and has proven to be year after year, a very strong success. So I will go on the presentation slide by slide and giving you also the number of the slides. So I'm now on Slide #2. The strategic rationale of this acquisition is very compelling. The acquisition is fully aligned with our worldwide leadership in light and sustainable construction. It allows us to enrich our offer of light construction products and better serve our customers. In terms of geography, Bailey will further increase our presence in North America, the key region in terms of growth and profitability, in particular in the growing Canadian construction market. This move is perfectly aligned with the development of our geographic footprint in high-growth regions, which has been 1 of the 2 main objectives of our growth and impact strategic plans along with our accelerated [indiscernible] towards [indiscernible] chemicals. We made last year already close to 2/3 of our operating income in North America, Asia Pacific and emerging markets. So it is truly a growth-driven acquisition, and I'm very confident it will create significant value for Saint-Gobain shareholders. I now turn to Slide #3. This acquisition is further reinforcing our strong track record of profitable growth in North America, driven by our successful teams. As you know, CertainTeed offers, in North America, a wide breadth of solutions for both residential and nonresidential markets, covering both interior and exterior solutions, an offer which is second to none. The strength of our strategy is demonstrated by strong results, both in top line 17% annual growth rate since 2019 and EBITDA margin above 20%. CertainTeed is also the preferred brand in North America for contractors and homeowners as we add to our offer, we add more innovation, better service and the systems approach to this audience have gravitated to more sustainable and reliable solutions. Finally, I'm very confident we can rely on our strong local organization in North America to continue to drive market outperformance. On Slide #4, assuming Canada within North America, Canada is a large and growing market where Saint-Gobain is a leader in light and sustainable construction. We have achieved excellent results in 2023. We now have CAD 1.8 billion in sales pro forma after the [indiscernible] and the [indiscernible] product of Canada acquisitions, both in 2022 and 2023, meaning the 32% sales annual growth rate over 5 years. And post the Bailey acquisition, we'll have [indiscernible] size since 2021. We focus on Canada since there are strong underlying drivers in this country, a significant structural housing need of more than 5 million units by 2030 according to the Canada Mortgage and Housing Corporation, a strong demographic trend with population growth 3x higher than the OECD average and migration of more than 400,000 people per year. The Canadian government is aware of this situation and has set up a national housing strategy, which has multiplied by 4 the annual housing investments to reach CAD 11 billion in 2024. I was in Canada with all our executive committee 2 weeks ago, and I can tell you that we have achieved this successful growth by being customer-centric and delivering innovative products, solutions and also having the right service with fantastic teams. On Slide #5, on the specific metal framing market of Bailey, Saint-Gobain overall is already a leading worldwide player. Indeed, metal frames are key components of light construction. They are used in external walls and partition walls, in suspended ceilings as well as roofing applications and in complex architectural design systems. Metal frames are part of our Saint-Gobain's system approach as illustrated with this wall system combining many of our solutions. Metal frames are commonly associated and jointly [indiscernible] with multiproduct systems, bringing strength, fire resistance and improved acoustic performance among many other attributes. There is quite a lot of innovation, sometimes [indiscernible] in order to improve design, productivity and the epidemics, thanks to metal frames. We are already selling metal frames in more than half of the Saint-Gobain countries and in fact just interior solutions, it is common to say that for each $1 of plasterboard -- EUR 1 of plasterboard sale, you will have up to EUR 0.15 to EUR 0.20 of metal frames. So truly a very key accessory component of our system approach. Now turning to Slide #6. Bailey is a perfect fit for Saint-Gobain in Canada. First of all, we already know them well, very well since we have entertained a long-standing partnership with them over the last 15 years with our common joint venture, the grid company in ceiling grids, but most importantly, we are a recognized market leader with 75 years of history, and we have a very positive image in Canada, supported by the best-in-class customer service with next day delivery. Mark will highlight that better than me in a minute. All of this is demonstrated in a strong track record of profitable growth with EBITDA margin at 17.2%. Our North American teams have built strong [indiscernible] of the Bailey teams and how also they have grown over the years. The Bailey teams have a very deep connection with both contractors and channel partners at every level of their organization. They have also built a model based on both innovation and best-in-class service that has allowed them to grow with their customers in the past decade. Culturally, they have the same TEC management philosophy as Saint-Gobain. TEC means trust, empowerment and collaboration. This is what we have promoted within Saint-Gobain for the last 5 years. I have personally met several times with the CEO of the Bailey company over the last 10 years and have a very high respect for what the Bailey teams have accomplished over the years under the leadership of Angelo [indiscernible]. So now I leave the floor to Mark, our CEO for North America, who has done a terrific job to lead our North American successes over the years and will drive through more insights, Mark, the floor is yours.

Thank you very much, Benoit. I'm sitting here presently in the Bailey offices in Toronto, where I've had the opportunity to meet the teams this morning. So very excited to be here. On Slide 7, these charts illustrate our transformation trajectory step by step over the last few years in Canada, where we've acquired Kaycan in 2022, BP of Canada in 2023 and now Bailey in 2024 to continue our growth as a leader in light and sustainable construction with a wide range of interior and exterior solutions, building a strong offer while tripling the size of our business in Canada. Slide 8. As Benoit said, this acquisition is a perfect fit for Saint-Gobain in Canada. As you can see from this picture, Bailey completes our offer for residential and nonresidential light construction in Canada. Bailey's solutions for ceilings and plasterboard framing are a good add-on to our gypsum solutions and enable us to offer high value-added complete systems for our customers and truly be the leader in light and sustainable construction. Slide 9. Also as Benoit mentioned, we have built over the past years a strong track record in terms of integrations and value creation from acquisitions. The [indiscernible] building products will create value in year 2, 1 year ahead of plan, and we are ahead of plan on the synergies for GCP and Kaycan. We are still in the first year of building products in Canada, but I can personally tell you that we are on track, and the team dynamic is strong, leveraging our U.S. manufacturing and commercial leadership on roofing, among other things, to bring value and collaboration. The combination of Saint-Gobain and Bailey will also unleash strong synergies, both operational and commercial. On procurement, Bailey and Kaycan will both benefit from the combined metal procurement capabilities. On operations, Bailey will benefit from Saint-Gobain's world-class manufacturing best practices, and Kaycan and Bailey will both benefit from mutual expertise in metal processing. And finally, this will enable us to better serve our common customers with common distributors [indiscernible] to market and offer them a full system combining Bailey and Saint-Gobain solutions. As a conclusion for me, I am very confident in the growth of our combined organizations in the coming years, being able to provide a broader systems, deeper innovation and better servicing our customers. I've had the pleasure of working closely with Angelo and Stuart. Angelo, who's the President; and Stuart, who's Executive Vice President and a member of the family for the Bailey team over the last 5 years in our JV board and activity. I'm so excited that they'll be staying to manage the business. I'm [indiscernible] impressed with so many aspects of how they go about this business. For instance, special orders here in Toronto received by 4:00 p.m. today will be delivered downtown Toronto in the morning before any other -- before the lights are on in most of the buildings. And this will be special-sized studs by floor, and they can do this in all the big metropolitan areas before the sun rises. They have best-in-class machine shops located here that systematically rebuilds their core equipment to customize specifications each year, [indiscernible] piece of equipment at a very high quality meaning they can consistently innovate and match customer needs. And I have personally seen, traveling through the plants and spending time with Angelo and the team, the deep connection he has with contractors and distributors and his employees throughout Canada. They're truly the definition of a partner. They're agile, and we appreciate trust, empowerment and collaboration as part of the culture, and we are really excited to learn from them and grow with them as we move further into systems and solutions in Canada. I'll now hand it over to Sreedhar.

Thank you, Mark. The acquisition of Bailey is value creative, supported by synergies of CAD 46 million with cost synergies of CAD 21 million and an additional CAD 5 million of EBITDA impact through opportunities to increase sales. These amounts are expected to be secured in the year -- by the year 3. Cost synergies, which represents 80% of the total synergies, are expected to be captured through purchasing [indiscernible] through Bailey and Kaycan joint capabilities in metal, maximizing our efficiency with industrial performance and supply chain, SG&A reduction to scale effects with our Canadian organization. In addition, we expect synergies with an impact on EBITDA of around CAD 5 million from our enriched offer with the addition of Bailey. These synergies are clearly identified, and we are very confident to secure them smoothly, thanks to bright cultural fit between the Bailey and Saint-Gobain teams. We don't expect any meaningful implementation cost to realize these synergies. So Slide #11. Now let's move to the transaction overview. Our offer price implies an enterprise value of CAD 880 million, which means around EUR 600 million, representing a 9.6x that is of 2023 EBITDA, multiple free synergies. And if we take the post-synergy multiple, it will be 7.5x. The transaction is value creative by year 3, meeting our strict financial criteria for any acquisition. The transaction will be fully financed in cash, with 30% of the payments deferred to year 3 and will have a very limited impact on our leverage ratio. In terms of the transaction process, the share purchase agreement has been signed after a productive bilateral process with the family. The management team is fully committed to staying and running the business as well as achieving the synergies, which Mark mentioned. Closing of the transaction is subject to customary closing conditions. It is expected to close in H2 2024. I will now pass the floor back to Benoit to make the concluding remarks.

Thank you, Sreedhar. I go to the last slide, Slide #12. So as we wrap up, this move is a further step for Saint-Gobain, in our profitable growth trajectory in North America with a strong value creation. We add more innovation and the [indiscernible] support for our customers in Canada as they move towards more and more sustainable and reliable solutions. The acquisition will also strengthen our group's presence and ongoing success in North America. I'm confident that the growth-driven acquisition will certainly create high value for our shareholders. And I must say also, we are very fortunate to have a very solid leadership team in North America outperforming the market, both in U.S. and Canada. Mark and his team are committed to the flawless execution of integrating Bailey in Saint-Gobain. I know the culture fit is extremely strong because we have been long-standing partners, and we are all committed to drive value creation as our team in North America has demonstrated in [indiscernible] transactions over the last 4 years. So I'm [indiscernible] along with Mark and Sreedhar to welcome all Bailey teams within Saint-Gobain. So we stop there, and we are now happy to take any questions you may have on this transaction.

[Operator Instructions] The first question is from Ebrahim Homani of CIC.

I have three, if I may. The first one is about the acquisition you made in Canada, you acquired Kaycan, CertainTeed, BPC, GCP and now Bailey, which kind of solution is still need to acquire or develop to complete your offer in Canada? And a follow-up question, what's your target, let's say, in 5 years in terms of sales in Canada? And is this market already consolidated? And my third question maybe on the margin dynamic of Bailey. Could we have maybe an idea of the margin last year compared to the EBITDA margin in 2023 and maybe the price and volume effects of Bailey in 2023 compared to 2022.

In case -- so I will take the first two, and Sreedhar will take the last one. So I would say with all the moves we have done in a timely manner in Canada, I think we have the right offer, both for interior and exterior and both for residential and nonresidential and within residential, be it single-family or multifamily. So I think we have the right offer, and of course, the right price also, the right presence in terms of footprint, coast to coast, in a large country like Canada. That being said, what is very interesting about what we have now that we have such a critical size is that you will have specialty products, additional development. I took one example. In Canada, [indiscernible] they just [indiscernible] last year, the code of energy efficiency. We used to have a lot of internal insulation, and we are, of course, a player in internal insulation. We are moving towards external insulation. So that's typically within our category of insulation, which [indiscernible]. But adding to it, external application. So you can see that it will be further development, more organic growth, innovation, bringing to Canada products that we know well outside the Canada and in the rest of the world. Another example, Canada is a [indiscernible] market. We are moving, and we are intrigued by the wood fiber insulation, but clearly it's one kind of addition. And if I take [indiscernible] -- as you remember, Kaycan was vinyl siding, metal casing. So a lot engineered wood, a lot of different product lines. So the growth in Canada, in terms of offer, will be more towards enriching within the main families of categories that we have already enriching the offer. If I take metal framing, it's not a product category per se. It's an accessory that goes hand in hand with plasterboard where you sell $0.15 to $0.20, each time you sell $1 of the plasterboard. So that's the way we think in terms of Canada going forward. The target in 5 years from now, it will be not driven by organic growth. And we are happy to say that Canada has been a high single-digit organic growth over the last years, even a bit higher than that, if I were to [indiscernible] just plasterboard, where we are a strong player. So that's the kind of organic growth trajectory. We expect out of a base, which will be on a pro forma basis, CAD 2.3 billion after Bailey. So leveraging cross synergy, cross-selling [indiscernible] over the coming years, but more on the organic growth now that we have such a good established base. Sreedhar [indiscernible].

In terms of margin dynamics, as you have seen in the presentation, we talked about a little more than 17% is that EBITDA for 2023. It's -- they have a good dynamic. Overall, there is a good trend, which we see and especially now with the combination of Saint-Gobain and with all the solutions that we offer, we are very optimistic about their ability to continuously make progress. So we are pretty excited about their evolution of margin and also the ability to get more market share and strengthen the market position.

The next question is from Yassine Touahri of On Field Investment Research.

A few questions. When you first some -- question about accounting. I think you're disclosing the EBITDA of CAD 91 million. Do you have a view of what is the operating income or the level of depreciation as the percentage itself? Then maybe ...

Go ahead. [indiscernible] please raise all your questions, and we'll take them one by one.

So on the liquidation.

So you -- okay, so let's answer Sreedhar [indiscernible].

[indiscernible] 1.5% of the sales.

1.5% of sales. And then a second question on the financing costs. Interest rates have increased a little bit [indiscernible] overview of commercials with [indiscernible]? And then other question, when you look at this business for 2024, what do you see at the beginning of the year? And what is your feeling about [indiscernible] in 2024 in terms of EBITDA and in terms of revenue, would be great if you could give us a bit of color on what's happening in Canada? And then another question, which is ...

No, go ahead. It's a long [indiscernible] question. [indiscernible]. Go ahead and we'll take that.

It's still on your strategy. You're in a position where you've got a new exciting business that is quite complimentary to your position in Canada. Do you see scope to do something similar in the U.S. And I think that, that one that you got some metal panel in Bailey. I think that the insulated panel market has been very -- has been growing very fast in Europe and in the U.S. Is it a business that you could consider to enter now that you have a panel business in Canada.

So it's a full strategic review. So we'll make sure we don't forget the question. So Sreedhar will take the question on the financing, and I will take the question on '24 and the strategy going forward, and Mark will also complement about the U.S. Sreedhar?

Yes. So the group's weighted average cost of capital is around [indiscernible]. So that's a nice benchmark to keep in mind when you look at the return on capital employed from this acquisition.

The financing, I think it was also -- and you raised [indiscernible] bond at 3.5%, average 8 years. So it was good financing. And today, when we put the cash on treasury, it's even a higher rate than what we -- so low financing cost in a big thing. That's a good thing. And also, we have seen slides that we stayed below the 1.5 to 2x debt-to-EBITDA ratio is done after [indiscernible] and after Bailey. So it's very reasonable in terms of leverage, we stay on the low side of the range. In 2024, well, as you know, we have our Q1 sales call by the end of April. So I don't want to highlight anything specific. I can tell you that we have been, over the last 2 years, very confident about the trajectory in North America. We delivered a good -- a very good performance last year, above 5% organic growth together in North America, both U.S. and Canada. And Bailey, overall, is within this trajectory. So we are confident that the year progressing overall in 2024, we will give you more color about Canada and U.S. in late April, but Bailey is totally in this trajectory on top of, of course, the midterm growth, which is extremely significant in Canada by 2030. So it's a good start to the year overall for -- aligned with the end of last year and the full year of 2023 for both Saint-Gobain and also Bailey in Canada. In terms of strategy, we are opportunistic on accessories. Sometimes it's purely a trading activity. Sometimes we manufactured -- has in mind what we do for instance in South Africa, what we do in Vietnam. Bailey is a very strong partner that we know well that has leading position in Canada, coast-to-coast with a best-in-class service. So this is why it makes sense to combine Bailey and Saint-Gobain in Canada. So that's the strategic rationale of that. It's not always the situation and the same country by country, and I will let Mark elaborate about the U.S. So we are opportunistic when it makes sense and when it's a perfect fit in terms of having the offer on trading, having the offer on manufacturing, we do it. Bailey is exactly that and we know them well because they have been a partner for 15 years. So that's the way we look at it. We don't have in mind, if I take your question on insulated panels, to go in that space at this stage in North America or elsewhere in the world. We service it a bit from [indiscernible] output, but not manufacturing insulated panels ourselves, and it's not in the plan in the short term. Maybe, Mark, do you want to -- because indeed the picture is different between U.S. and Canada, do you want to elaborate on that?

Yes. I think you said it very well about being opportunistic and looking for the proper opportunities by countries. In Canada, as many of you may know, there's a much higher degree of high-rise or mid- to high-rise multifamily building, which is really more driven towards a metal stud manufacturing style of interiors. So it gets much more towards the trends going forward with that market where a lot of our drywall is used. We know Bailey is very, very well through the big company JV and know that the culture is matched extremely well. So that's a key way to looking at acquisitions going forward. We think that there was going to be a move here one way or the other, and we think it's very important for us to be involved in it. There's different dynamics, much more single-family, a much different building dynamics, if you will, in the housing market in the U.S. So that's why this makes perfect sense from a Canadian perspective, but perhaps will not be the same [indiscernible] from the U.S. market.

The next question is from Arnaud Lehmann of Bank of America.

Maybe a couple of questions on Bailey, please. Firstly, could you describe the existing relationships between Bailey and your other businesses in Canada? Is it already a supplier to certainty of BPC? And related to that, I'm assuming it's similar customers to your existing business in Canada and similar search channels. Maybe if you could expand a bit on that, please?

Mark, you take the lead on that?

Sure, sure, sure. So existing relationship, we've talked a lot about the good companies. So that's the first thing that you're well aware of where we have a JV, and we try to manufacture the product and we sell it to our CertainTeed U.S. and Canadian organizations. The mark to markets are very similar. So they go through a very similar group as well as expanded group of distribution that we use on our interior solutions distributors as well as some direct-to-contractor business. In the end, their business, it's direct to contractor and some of the Bailey business direct to contractor where we have very close relationships. So we do not buy metal studs from them today, but there is a very common customer overlap and distributor overlap.

So that's part of all the sales synergies opportunities. If you take the big picture, they are a bit stronger than us on the nonresidential. We are a bit stronger on residential, and both, of course, take metal frame as part of the interior solutions approach. So that's clearly opportunities to take the strength of each and some applications and doing that within channels and with distributors or direct to contractors that are already common customers. So that's quite an easy, I would say, cultural combination and also operational combination on the ground.

And sorry, can I follow up on the previous questions around why it makes sense in Canada? And why, for example, it doesn't make sense in France or Germany or your other large markets to [ strong ] metal frame?

It's a good question. It's [indiscernible] -- it happens that Bailey is a very strong established player in Canada with a significant presence, both geographically, historically, 12 plants, 75 years of history, coast to coast service delivery, which is second to none. If you order upfront, it get delivered in Calgary, in Montreal, in Toronto the next morning. It doesn't exist elsewhere around the world. Metal frame in other countries we have in Vietnam, and we have created it from scratch. We do it in India. But in many countries, you don't have such a deep expertise and knowledge. And therefore, you have more, I would say, basic trading of the metal frame, along with your plasterboard versus having such a competitive advantage. [indiscernible] you know that we are all invited for original fittings in the visit in the U.K. British Gypsum. British Gypsum in the U.K. has driven a very strong partnership on metal frame with a company, which wasn't for sale, and we don't have that in the plan, but it's a very intimate partnership where the patent, the certified fireproof system [indiscernible] together. So with the strength of British Gypsum with the present market share in the U.K., that's kind of expertise and combination that exists in the U.K., which, in my mind, is similar to what exists in Canada. This partner in the U.K. is not for sale. I don't know whether in 5 years, 10 years, 15 they will be, but they are not. But that's the kind of unique combination where you can patent design, provide the certificate and deliver a best-in-class total system and solutions for the contractor. But we'll highlight that when we'll be together in the U.K. in early July.

Right. So you're not signaling that you're entering metal framing globally and would be quite looking for acquisitions. It sounds more like an opportunistic move for a strong player in a market.

Exactly, exactly. When you have such a strong player, when you're such a strong fit with your own operations, where we have strong profitable business in Canada, like in the U.K., then it's totally part and natural part and in hand of the construction system offer, country by country, where we promote our teams to look at that as a trading activity. Again, you can manufacture. I mentioned Vietnam as one example, South Africa. And then when you do it well, you could have it up to 15 cents, 20 cents on the dollar [indiscernible]. So you can see that with the same sales people, the same channel, the same distributor, you enhance the added value that you provide and [indiscernible] in the basket of your overall sales activity. But yes, it's opportunistic, and we take the best player if and where it makes sense.

The next question is from Gregor Kuglitsch of UBS.

I've got maybe a couple of questions, just maybe for my understanding, how much of the revenues of this business are in the JV that you were referring to? So how much is already kind of what you know out of that CAD 500 million? And then just to be clear, are you sort of aiming to basically bundle, I don't know, plasterboard with these accessories? And if that's the case, are you essentially replacing another supplier? Or is it not the way to think about it? Or is it basically externally procured right now separately by your customers? And then maybe just sort of an overview question on Canada. So now you're at CAD 2.3 billion or something like that pro forma sales, what's the margin these days? And perhaps how has that compared to previous journey when you started back in '21? Give us sort of a direction of what the profitability of Canada is, please.

Sure. So Sreedhar will take question number one.

So in terms of sales, it's very limited, whether -- because it's very specific to ceiling grids. So it's not a very wide range of arrangement. So it's not very significant. When you look at the sales that they have, which is CAD 532 million, as compared to that, it's very limited.

And then on your second question, today, if I'm a distributor in Toronto or contractor in Vancouver, I buy separately. So the idea to cross-sell is exactly the same. And what we are doing on other product lines, we can have a better service, one truck delivery, a complete system with the certificate I just mentioned in the question from Arnaud. So this is the ability to offer better service, more innovation for some of their patented some pre design, then you can design a full partition with their patented metal frame plus our plasterboard. So there are a lot of better saving, better innovation, better coverage of course, on the ground from a practical that we will push going forward. I think another example which I touched, our insulation business 5 years ago, when we started the journey of [ transformation ] in Canada. Plasterboard has always been a strong position. We are #1 in Canada. Insulation was -- it's a [ distant ] market share. We doubled our market share in insulation, thanks to the alignment of our offer between [indiscernible] solutions. So that's the kind of benefit, when we provide the 2 products to the same customer within the same channel. So that's the kind of cost-saving activity we will put forward. Mark, do you want to add any color on that?

Yes. I mean I think -- yes, I think the benefit is significant to our distributors, our contractors and the end customer from a simple thing, as we've discussed on insulation, one call, one order and one place of contact, their sales person to contact when there are issues, which is very meaningful for the full channel going forward. Plus, really the ability to build an innovative offer for fire systems and sound systems and water systems so that we can combine the technology and innovation that Bailey has with the technology and innovation we have in our drywall product, combined with insulation product, we can add a great amount of value for ease of installation, for resiliency, for warranties and other aspects. So we will still be calling on the customers and we both have similar channels, although we have different customers as well. But the real benefit would be, for those that have common customers, a single point of contact, the ease of doing business, plus the ability to leverage our 2 innovations together to give better products to end customers.

And to your last question, sorry, on the trajectory of Canada. So we are at 18% EBITDA margin. Overall, North America tripled the operating income in the last year. So this is what we shared with you during our Investor Day last September, together with Mark and all the North American team. There, they're similar, Germany and Canada. I would say U.S. is above the 20% EBITDA margin that we have for North America, Canada slightly below, but that's a very similar trajectory altogether because we started earlier in the U.S. with acquisitions, Continental and GCP. We have had a bigger jump so far. But I'm expecting now, when you add together Kaycan, Monofrax, [indiscernible], BP of Canada for the full year and now Bailey, then we will reaccelerate again in Canada. But so in the ballpark of times 3 in profit, like we did for North America, times 3 in terms in Canada, and Canada is slightly below U.S., but altogether, highly volatile EBITDA margin for the group.

The next question is from Brijesh Siya of HSBC.

I have a couple as well. First of all, you're talking about opportunity and all. And when you -- when I look at the synergy gain, which you are putting around CAD 5 million for sales synergy with translates roughly 5%, 5.5% of sales, current daily sales. So with the opportunities we are talking about looking through the cycle, possibly in 5 years or 6 years' time, could you give us what's the kind of opportunity you are looking in terms of system selling, how much of the kind of the synergies you can gain as a group -- to the group in Canada?

Quite, quite so. So as you know, we are always very cautious on the synergies we put forward. The cost synergies like [indiscernible], CAD 5 million EBIT profit coming from the top line with synergy which is above CAD 20 million we have put in year 3, then I expect that to multiply by 3 if I take year 5 year 6, year 7. So it takes, as you know, a bit more time on the growth synergies. We are always a bit on the conservative side on the growth synergy because you don't factor that in our value creation model. But yes, it's something that will further accelerate after year 3. And going forward, we expect that to be multiplied significantly like we have had the experience overall in Canada with cross-selling opportunities in the last years.

And coming to Bailey's end market exposure, you talked about it's slightly more nonresidential, slightly less residential. Could you give us a split of how that is looking compared to your North America exposure of half renovation around 37%?

Well, it's -- as I said, it's a bit more towards nonresidential than us. If I take us [indiscernible] 80%. If I take all Saint-Gobain Canada on the pro forma, it is close to 80% on residential. Bailey is a bit less than that. They are roughly half-half between nonresidential and residential. But keep in mind also that within the nonresidential, they have a combined, each year, marketable between a high-rise multifamily and also some commercial nonresidential. So you could say 80% of Saint-Gobain is on residential, 20% commercial, and Bailey is a bit more than that. It's a bit more various, sorry, throughout nonresidential. And Mark, maybe you can elaborate on the specificity of the expanded end market with multifamily and higher storey.

Yes. So thank you, Benoit. I mean, I think in the Canadian market, you've seen a shift in the last decade and certainly the last 5 years to a much higher degree of multistorey high-rise residential, particularly in the metro areas, and now it is now the majority type of residential buildings. So when you look at Bailey, you really look at the high-rise levels. Even in the residential, they're more in a high-rise residential, which is -- really brings us into an offering that we're not as strong within our exterior product side business because that's more single family. So it balances off the residential for us quite nicely, to give us greater access where we are strong already in plasterboard, but this will make us even stronger in the growing high-rise residential market.

Understood. And just lastly, on the metal framing, overall, the Bailey offering you have in Canada and you talked about you have a builder business from scratch in Vietnam and you're offering that in India as well. How different your Vietnam and India offering compared to what Bailey is providing in Canada? And what can you can bring and what can you can kind of [indiscernible] from India and Vietnam today?

Right. So it's a very interesting question. Of course, we will start that benchmarking and changing within the teams on [ patterning ], of course, and how we then those lines of metal forming and metal framing, that part of the equation, and we already shared some line speed productivity [indiscernible] machine so that will be part of the operational excellence. After that, what is interesting in terms of [indiscernible] is all the innovation and system. Mark was quick to describe that the vast, vast majority of what Bailey is doing is customized special orders, special size, patent design. So that's part of the differentiating factor. This is something we can bring to country like India, Vietnam and also closer to us to the U.K. So taking all those patents, those specific designs, we are part of that in Vietnam, but this is truly on the top line, on the differentiating factor [indiscernible]. This is something we'll take from Bailey and the U.K. towards more developing markets such as India, Brazil and Vietnam.

To add to that, Benoit, because it's -- I think I'm a bit of a -- we're building more. But to Benoit's point, you have greater than 70% of the steel studs leaving here being customized. So when you're building a building in Toronto, each floor has a different length, each floor has a different height and these are measured. And so when the delivery gets delivered at 4 a.m. tomorrow morning, each floor is cut to size, packaged to that floor and delivered to the site. So it's not just a standard commodity stud that's being manufactured and different gauges and different specifications based on what floors are being built or they require different fire ratings or different load ratings. So the ability to run that level of custom studs at that level of service is just unparalleled, and it's why this is such a unique opportunity.

Understood. And sorry, one last one, if I may. On the metal frame part, I understand from you that you were not present in Canada before, and this is probably -- it clearly brings you that opportunity. Looking at the metal framing market in Canada, would you say that Bailey is the #1? And do you mark any other competitor who is providing similar system offering, which you are talking about now?

Well, it's a strong leader. We will go through the antitrust filing in the coming weeks and months. So I will not comment further on that. But it's a strong leader, both because of the history, the 75 years in Canada. It's at the very starting point of wallboard and plasterboard in Canada, a very well-known brand with unique footprint. They have 12 plants in Canada. It is something quite unique in order to have the service same day or overnight deliveries that's customized that you heard from Mark. That makes Bailey extremely attractive. I cannot elaborate more on that. But that's clearly part, of course, of the attractiveness of Bailey [indiscernible]. And we are, as you know, the #1 building materials players on our [indiscernible] offer together in Canada. So that will be very good for the service and innovation and the drive for the customers in Canada. Notably, when we think about the 5 million homes that has to be built, the productivity, the agronomic, how you train the workforce, how you -- how special design that are easy to click, all that will be a big, big benefit for Canada housing and customers.

The next question is from Cedar Ekblom of Morgan Stanley.

One clarifying question. Sreedhar, did you say that 1/3 of the cash consideration is only getting paid in year 3? And then just in terms of the business itself, is this currently family owned? Or are you buying out of a different owner? And then can you just talk about how the deal sort of arose? Did you approach Bailey to talk about an acquisition? Or what actually caused this to happen now?

And so I will take the question number three, and Sreedhar will take -- this family is the third generation in the business that they have built over the years. We have -- and Mark, notably, have established a very strong intimate and deep relationship with them over the last years of the JV. And as you know, Mark, before being the head of CertainTeed, has been within CertainTeed in different business organizations and was very instrumental in this JV, its infancy. When they decided that they have no successor and it was time for them to sell the business, they naturally approach us because of the cultural fit, because the respect, I think, we have earned in terms of how we operate, in terms of values, in terms of culture and also in terms of trajectory in Canada. We discussed that. Mark started the discussions. I was part of that discussion last summer. So it was a bilateral discussion, taking into consideration the fact that after 3 generations, the owners wanted to find a final good home for the company. And indeed, they were 100% family owned until now.

Yes. So no, for that, we -- I said 20% of the payment is deferred to the year 3.

Mark, do you want to elaborate here on the long-term relationship or discussions you have with Angelo? And also the fact -- which is, I think, extremely valuable, the fact that they will continue to run with the expertise of the business going forward. This is to your credit, Mark, if you want to elaborate.

Yes. No, no, I think you said it very well, that we've had a very close relationship. We work closely through them through their good company. And I think it was always clear that if someday, the family decided they would like to exit the business, that we would certainly be one of their first calls. So we were fortunate to be that call. We worked with the family on a bilateral basis. It was important to us that they stay on to run the business. We think they do a spectacular job. They know the industry very well. They have a deep talent base, [indiscernible] Stuart and Angelo, that are running the various businesses as well. We think there's incredible opportunity for joint collaboration as we do this going forward, and it became a very productive bilateral discussion that took place over the past number of months, culminating in a signing this morning. So it was always, I think, important to us that should they decide to change the ownership structure, that we would be a call, and our relationship brought us that call.

I don't think we have any more question, if I'm correct, on my screen. Any more question on the call?

Gentlemen, there are no more questions registered at this time.

Well, thank you very much to all of you. As you know, we have our first quarter sales call on April 26. Obviously, I think at some point after the fantastic streak we have in the U.S. last September, with you all the year visit to Canada one day. So we'll make sure we'll do that in the spring or in the summer and really good weather conditions. But thank you very much for your time tonight, and thank you, Mark, out of Canada. And I wish you a great evening. Thank you very much. Goodbye.