CSR Ltd., an ASX listed company

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Introduction

CRS Ltd is a company that engages in the manufacturing business. Its operations are carried out in all over Australia. In addition to operating in Australia, the company also operates in such regions as Asia and New Zealand.

The most important activities that this company currently engages in are raw sugar milling from the sugarcane and the production of ethanol. The company also is involved in the production of “refined sugar products” and it also distributes these products in New Zealand and Australia CSR Ltd., 2011, p.1).

In addition to these, the CSR Ltd Company is also involved in the manufacturing and distribution of building products. The company’s basic business segments include “sugar, building products, aluminium and property” (CSR Ltd., 2011, p.1).

This company has been seen to keenly engage in various business operations in an effort to increase value for its shareholders. For instance; in the year 2006 during the month of December, CSR Ltd Company got involved in the acquisition of “Fricker Ceiling Systems” (CSR Ltd., 2011).

“Fricker Ceiling Systems is a supplier of suspended ceilings to the Sydney commercial building market” (CSR Ltd., 2011, p.1). In the year that followed (2007), the company engaged in the acquisition of “Don Mathieson & Staff Glass Pty Ltd”. Last year (2010), CSR Ltd realized completion of selling sucrose to another company known as Wilmar International Ltd.

(Sucrogen Ltd, 2010). These are just among a few efforts that have been carried out by the CSR Ltd Company in an attempt to improve its performance. These are among the company’s several operations that it engages in. In this report, there is going to be consideration of the company’s brief history which will serve to offer the background information for the discussion in the subsequent sections.

The various moves that have been undertaken by this company to improve its performance are going to be considered in this report. More so, the financial performance of the CSR Ltd Company is also going to be looked at in order to determine whether or not the company that is trying to survive and having many options available.

The Company’s Brief History

CSR limited is a publicly traded company on the ASX. The company has a total of about ten thousand employees, basing on the 2009 figures. The company commenced its operations in the year 1855 in Sidney where it was financed as the “Colonial Sugar Refining Company”.

It began by refining raw sugar that was imported and in the course of the 1870s; it expanded its operations in to the market of Melbourne. In the course of the two decades that followed, the company engaged in the establishment of mills in Fiji and also in Queensland.

These mills commenced on the processing of the sugar which was grown locally. Later on in time, there was signing of an agreement between CSR and the state government of Queensland for the CSR Company to engage in refining all the state of Queensland’s sugar production. This would turn out to be a monopoly that went on until the year 1989 (Funding Universe, 2001).

In the current times, the production of the “refined sugar products” for the current retail market is jointly carried out by CSR and Mackay Sugar Co-operative. Three quarters of the operations are under the control of CSR. The “CSR brand” is made use of on the larger number of the sugar products that are produced.

CSR Ltd also engages in the production of ethanol. The ethanol is produced from the molasses which is a by-product that is obtained after sugar production. The ethanol is used in the manufacturing of the ethanol fuel. It is also used in the manufacturing of various of ethanols that are used for various chemical processes including food production.

CSR Ltd commenced on carrying out diversification of its operations long time ago and that was in the year 1942. The starting point of diversifying was when the company set up a plaster mill in Sidney. The company started manufacturing plasterboard in this mill in the year 1947 and introduced this product to the Australian market in the same year.

In the year 1959, the company undertook acquisition of Bradford Insulation. This one helped in the production of “heat insulation” materials that were used in the buildings. Following this move, the company is, in the current times, having a considerable Australian insulation market share.

The company has expanded its operations in this line through setting up insulation businesses in such countries as Malaysia, China and Thailand. These businesses set up were initially joint ventures but they are currently owned wholly by the CSR Ltd Company.

Other than the above mentioned operations of the company, the CSR Ltd Company also engages in the production of “fiber cement sheeting, aerated concrete products, bricks and systems to support plasterboard construction through Rondo, a joint venture with Boral” (Anonymous, CSR Ltd., 2011, Par.4).

In the year 2007, this company took a step to engage in the acquisition of glass businesses of Australasia of Melbourne and Pilkington. This is a company that is based in the processing of glass and following the acquisition, the company was given another name as Viridian.

The interest of the CSR Ltd Company in aluminium is “through an approximate 25% stake in the Tomago aluminium stake smelter near Newcastle, new South Wales” (Anon: CSR Ltd investor presentation, 2009, p.11).

More recently, in the year 2010, the CSR Ltd Company engaged in the sell of its ethanol as well as sugar businesses, otherwise known as Sucrogen, to the Wilmar Company, which is a company based in Singapore.

Company’s Financial Performance

According to the CSR Annual Report (Chairman’s Review, 2010), there was improvement in the company’s “underlying financial performance” for the financial year ended March 31th the year 2010. The company’s sugar business, as it was reported by the Chairman, Ian Blackburne in the Annual Report, “had a very good year on the strength of higher raw sugar prices, while earnings in the building products business were steady despite generally weaker housing construction markets for most of the year” (CSR Annual Report: Chairman’s Review, 2010, p.3).

It was also reported that the Aluminium profits were higher. This followed a rise in the price of aluminium that was realized when the year was coming to an end. However, the company’s “Property division” experienced the market conditions that were weaker (CSR Annual Report: Chairman’s Review, 2010).

According to the CSR Annual Report (2010) the chairman reported that “group earnings before interest and tax increased by 14 % to $364.1 million, while net profit after tax increased by 29% to 174.4 million…Earnings per share increased to 12.7% per share from 12.2 the previous year” (CSR Annual Report, Chairman’s Review, 2010, p.3).

The company’s board of directors made a declaration of a “final dividend” of 6%/share making the year’s full dividend to be 8.5 % which had stood at 7.5 % the previous year (2009). This was in accordance with the company’s policy “to pay out as dividends 60 – 80 % of net profit after tax before significant items (CSR Annual Report: Chairman’s Review, 2010, p.3).

The gains of the companies of the large “capital reinvestment” program that had been implemented a short period earlier on made a contribution to company’s better performance and this encompasses “improved reliability in the sugar mills and expanded production capacity in building products with an eye to meeting growing demand” (CSR Annual Report: Chairman’s Review, 2010, p.3).

This company’s balance sheet is still strong, having been in a position to introduce equity of three hundred and seventy five million dollars in the course of the year (2010).

Basing on the CSR Annual report (2011), in the financial year ended the company announced a net profit after tax for the continuing operations of the company of $90.2 million which was an increase of about 13 % as compared to the previous year (2010).

The “continuing operations” do not encompass the “Asian insulation business” as well as the Sucrogen business. These two businesses had been sold in the month of December 2010 (Cratchley, 2010).

Basing on the 2011 annual report of the company, there was continual improvement in the earnings across all the “Building Products Businesses”. This was not the case in the “insulation businesses”.

In the insulation businesses the result of the preceding year encompassed an important contribution from the “insulation rebate scheme” (CSR Annual Report, 2011, p.4). There was a 28% rise in Building Products (EBIT).

In carrying out a comparison between the financial year 2010 and 2011 in regard to the performance of the Aluminium EBIT of 111.9 million dollars, there was a 9% decrease but this was above “the market guidance” as a result of an increase in the U.S dollar metal price after carrying out hedging when the financial was coming to an end.

Proposal for a demerger

In June, the year 2009, an announcement was made by the company’s directors that the company would undertake a demerger of the company’s “Sucrogen business”. This demerger brings about two companies that are listed separately on the ASX.

The two companies are Sucrogen and CSR that incorporates the company’s property business and Aluminium and building products. It was believed that this demerger will help in having improved realization of these businesses’ value for the shareholders in the course of time and this was still underway at that time (Sucrogen bioethanol.com, 2010).

Pugh reported that CSR would “proceed with a spinoff of the business from its building material and aluminium units after rejecting a A$ 1.5 billion offer from China’s Food Group Co” (Pugh, 2010, Par. 1). Basing on his statement, it was indicated that CSR preferred a demerger and this was considered to be in the best interests of the shareholders.

This conclusion was arrived at after analyzing the proposal from the Bright Food Group Company. More so, as reported by Pugh (2010), the CSR Company which is among the largest producer of building materials in Australia, had been looking for ways to sell the sugar business in order to capitalize on the “surging prices”. A demerger was initially blocked and the case went to court.

However, the court overturned the case. Following this, the Bright Food Group company increased its initial offer that had stood at A$ 1.5 to A$1.75 billion and this prompted CSR to have a willingness to engage in talks with this company. As at April 2010, the talks were still underway (Reuters, 2010).

Independent and focused businesses

Meanwhile, it was reported that the company has carried out some changes on its operating structure to allow the company’s main businesses higher independence to carry out their operations as separate entities (Australian Tax Office, 2011).

The chairman reports that while these two main businesses of the company are still a component of the CSR group, it is believed that the company’s businesses “can still deliver greater returns by being more focused and managed independently” (CSR Annual Report: Managing Director’s Review, 2010, p.3).

As a way of offering support to this new structure, the management ensured streamlining and making its “centralized corporate functions” simple and shifted those tasks to the businesses in a direct manner to allow these businesses to become more proficient and responsible (Morschel, 2003). Even after the two businesses being separated, the chairman would still remain to be CSR Ltd’s chairman.

Separating the two businesses as a way of creating value

The managing direct of the company, Jeremy Sutcliffe, in an interview acknowledged that nothing wrong was in the company’s current structure. However, he pointed out that, as the management, they had the responsibility to find opportunities to generate additional value for the company’s shareholders whenever this is possible.

The company has various businesses that are appealing to different investors in a different way. By ensuring that the company’s businesses are separated, and having these businesses putting their focus with their own board of directors as well as their own management, the company can make it possible to realize more value of the businesses in the course of time (CSR, 2003).

In addition, by having businesses as separate entities, this offers the shareholders with higher investment options. This will in turn boost the investor awareness as well as the market awareness of each business (CSR Annual Report: Managing Director’s Review, 2010).

Viridian Glass business

At some point in time, the company acquired the Viridian Glass business in the year 2007. From the time the acquisition took place, there have been disappointments in regard to the performance of this business. In the interview, the Managing Director of the company pointed out that the performance of the business has been unsatisfactory.

The MD said that the CSR Company purchased the glass businesses during a season when “market valuations were much higher and business conditions were much better than they have been the past two years” (CSR Annual Report: Managing Director’s Review, 2010, p. 2).

He admitted that it is not a complicated fact that the company paid a lot of money and it has had to “write down the value of Viridian to reflect its current carrying value” (CSR Annual: Managing Director’s Review, 2010, p.2). More so, it is as well indicated that there was poor integration of the businesses within the company and this left a negative impact on the company’s performance.

In the Viridian businesses, there are basically two businesses. One of them is the “Upstream”; the manufacture of “float glass” and “Downstream” which entails “value adding processing” of glass. In the year 2009, there was improvement in the “Upstream business” performance and this performance went up where there was an increase in EBIT as well as revenue.

However, the “Downstream business” was impacted following a loss in the market share and the market conditions that were weak. But the company is determined to get over this by taking appropriate moves. Among the moves that are being carried out are the restructuring of the management team of this business.

This move has brought in some progress, as it was reported by the Company’s MD (CSR Annual Report: Managing Director’s Review, 2010).However, in order to realize great improvement in these businesses, more time will be required. Basically, this business is not in for collapse since it is being run by people who are committed to make the business to prosper.

Why CSR had to raise equity

As a part of the company’s having attentiveness to its operations, it was to recommend a demerger to the shareholders. This was to make sure that the two distinct companies would be best suited to capitalize with the relevant degree of debt.

The CSR Ltd took a step to raise the capital in order to make sure that the two companies (Sucrogen and CSR) would possess flexibility in their finances so that they could undertake their “stand-alone strategies” to generate value for the shareholders they have after the demerger taking place.

The MD pointed out that the money that was raised has been used to pay back the debt within the company and this has made it possible to strengthen the company’s financial position. More so, through raising the equity, there has been introduction of a “simultaneous renounceable entitlement offer” concept.

This concept offered a similar result for “retail and institutional shareholders for their entitlements” (CSR Annual Report: Managing Director’s Review, 2010, p.3). It is pointed out that, following this, other companies in Australia have also taken up this approach, that is, raising equity.

Demerger proposal and the future of the asbestos liabilities

Concerning the demerger proposal and the asbestos liabilities’ future, the MD pointed out that, in the course of a period of over two decades, the company has over and over again, and in a responsible manner, been able to meet the asbestos liabilities.

The company pays claims where it has a demonstrated liability and it maintains a provision on its balance sheet to meet all of the claims that are known and see beforehand, in a reasonable manner, the claims that could come in the future.

According to the MD, making a recommendation of the “demerger proposal”, the company’s board of directors to carry out a significant level of due diligence to draw a conclusion that after the demerger, the company would go on being in a position of meeting the responsibilities it has.

Outlook for CSR’S businesses as per the year 2010

In the year 2010, in regard to the company’s “building products business”, there was realization of, according to the MD in the CSR Annual Report (Managing Director’s Review, 2010) “improved lead indicators in the residential building environment in Australia and that should translate in to increased housing commencements, particularly in the first half of the current financial year” (CSR Annual Report: Managing Director’s Review, 2010, p.3).

However, it is not clear about how sustainable this increase is and this is because of many factors. Therefore, the company is only optimistic in a careful manner in the Building products.

In aluminium, the managing director states that, the company has “a lower proportion of its net aluminium hedged” (CSR Annual Report: Managing Director’s Review, 2010, p. 3). This implies that the company’s earnings would be more connected to “spot aluminum prices” as compared to the year 2009.

It was projected that in the course of the year 2010, the price would be influenced by “the commissioning of new smelting capacity in the Middle East and China, and also the restoration of demand as global economic recovery” (CSR Annual Report: Managing Director’s Review, 2010, p.3).

There were expectations that the conditions in the industrial property as well as in the commercial sectors would remain weak.

In the company’s Sucrogen business, the raw sugar prices had gone down earlier, a short time before, but these prices still stood at the levels that were higher as compared to “long run average price” and this business went on with its “active hedging” program to lock in attractive prices for the year 2010 and beyond” (CSR Annual Report: Managing Director’s Review, 2010, p.3).

Conclusion

CSR Ltd is a company that basically engages in manufacturing. The company has been in business operations for a very long time. It has been encountering obstacles but been able to come up with strategies that have enabled it to survive.

The company has been diversifying its operations whenever the management has deemed it necessary. The company deals in various kinds of products. The company is mainly involved in such activities as raw sugar milling and production of renewable energy such as ethanol.

The company is also involved in the production of sugar products and supplies these products in New Zealand and Australia among other places. In addition to these operations, the CSR Ltd Company is as well involved in the manufacturing and distribution of building products, aluminium and in property also.

For this company to survive, it has been keen enough to take steps aimed at improving its performance to create value for its shareholders. For instance, at some point, the management of the company came dup with a demerger proposal.

This was believed to be in the best interest of the shareholders. The demerger was targeted at having two companies that were listed on the stock market separately. By ensuring the CSR Ltd Company’s businesses are separated, and having these businesses putting their focus with their own board of directors as well as their own management, the company can make it possible to realize more value of the businesses in the course of time.

Each and every investor has his or her own interests and is ready to come with an independent choice that is deemed to be of benefit. Having two separate companies would doffer an opportunity for the investors to make a choice in regard to where to invest.

More so, having separate companies with each having its own board of directors and management enables the companies to focus more on their core business. As a result of this, there would be improved performance in their operations.

The company undertook raising of equity. This move was aimed at raising finances in order to meet the financial demands for the operation of the two separate companies in order for them to implement their independent strategies.

More so, the money that was raised during that time has been used to pay back the debt within the company and this has made it possible to strengthen the company’s financial position.

In the recent times, the company has shown an improvement in the financial performance in most of its operations. The net profit has been raising since, with the financial year that ended march 2011 realizing a higher net profit that the previous year.

This company is among the companies that are working hard to survive. It has been taking a number of moves to ensure it remains in business beginning from the time it started its operation. There is a hope that this company is going to perform even better in the future.

References

Anon, 2009. CSR Ltd investor presentation. Web.

Anon, 2011. CSR Ltd. Web.

Australian Tax Office, 2011. Demergers: Class Ruling CR 2003/10 – CSR Ltd demerger. Web.

Cratchley, D., 2010. Judgment day for CSR demerger. Web.

CSR Annual Report , 2010. Managing Director’s Review. Web.

CSR Annual Report, 2010. Chairman’s Review. Web.

CSR Annual Report, 2011. Web.

CSR Limited, 2011. Company profile. Web.

CSR, 2003. Address to shareholders. CSR Limited AGM – 2003. Web.

Funding Universe, 2001. CSR Limited. Web.

Morschel, J., 2003.Shareholder meetings to approve demerger of Rinker Group Ltd from CSR Ltd. Chairman’s Address. Web.

Pugh, W., 2010. CSR rejects Bright Food Sugar offer, prefers demerger. Web.

Reuters, 2010. Australia’s CSR wins demerger appeal. Web.

Sucrogen Ltd, 2010. Agreement to sell Sucrogen at A.$1.75 billion to Wilmar International Ltd. Web.

Sucrogen bioethanol.com, 2010. CSR announces initiatives on the proposed demerger of sugar and renewable energy business. Web.

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