Building materials and sugar company CSR reported disappointing profits for the six months to September 30, 2007 today, with a strong dollar and weak prices impacting the bottom line result.
Net profit for the period fell 33.8% to $72.3 million, and profit including significant items fell 38.2% to $67.5 million.
"For the half year the significant increase in CSR Building Products' earning was not enough to offset the nearly 70% drop from sugar," managing director Jerry Maycock said.
The group outlook for the full year is expected to be around 5% lower due to the downturn in sugar and a lower result from the smaller property division. This guidance is in line with the September 2007 trading update.
"Net profit will also be impacted by increased costs due to the recent acquisition and higher average tax rate," Maycock said.
Half yearly earnings before interest and tax for sugar fell 69% to $22.4 million, in stark contrast to the 46% earnings increase in the building products sector.
The company said its sugar mills in northern Queensland have been delayed by heavy rain.
In a report on Australian commodities for the September quarter 2007, The Australian Bureau of Agricultural and Resource Economics states that Australian production of sugar cane is forecast to fall by 3 per cent to 35 million tonnes in 2007-08 as a result of adverse seasonal conditions.
Australian production of sugar is forecast to be slightly lower in 2007-08 than in 2006-07, at 4.63 million tonnes. Lower production will flow through to lower exports.
In regard to the positive building products result, Jerry Maycock attributes growth in the sector to acquisition of Pilkington and the restructuring of the Bricks and Roofing divisions.
"Despite the ongoing downturn in the east coast residential housing market, earnings from our existing businesses was up 18% on a 2% lift in revenue," he said.
Maycock conceded that a review of CSR's restructure was undertaken, however it was concluded (breaking up??) the portfolio at this point in the cycle would not result in any significant valuation uplift. This conclusion was based on CSR's yet having to benefit from $900 million worth of acquisitions over the last six months as well as pending investment in growth projects.
In other areas of the company, the Aluminium operations' earnings fell 3% to $65.9 million. This decrease was due to higher production costs and lower sales volumes.
"However growth in demand for aluminium continues to be strong and US$ prices should continue to be favourable, but will remain sensitive to the supply and demand balance for aluminium in China.
"Aluminium's operations earnings are expected to be slightly below last year," the company said.
The company reported earnings before interest and tax figure of $158.2 million, down 16%.
"A significant capital expenditure program is underway with over $400 million budgeted for investment in the next two to three years to coincide with an expected upturn in sugar and building products.
"We are improving business performance and investing in growth. I am confident that these steps will position the company to take advantage of improved market conditions anticipated in the future," Maycock said.
CSR shares fell 2.4% to end the day at $3.26.
