The stockmarket reaction to CSR’s 2008 annual profit was muted: the shares barely moved after a big recent fall and interest was cursory on a day when the BHP-Rio marriage situation got a kick along.
CSR shares finished a couple of cents higher at $2.98 after the company revealed a 35% drop in net earnings for the year and indicated that shareholders might have to wait another year to 18 months before the benefits are seen from internal improvements in the company.
CSR said net earnings after significant items fell to $177.4 million in the year to March, compared with $273.3 million in 2007.
Even stripping out significant items didn’t make much of an improvement: earnings were down 20% at $192.8 million in the latest year, against $240.5 million in 2007.
CSR maintained final dividend at nine cents fully franked the same as last year, which means its total payout for the year also remains unchanged at 15 cents fully franked.
It couldn’t cut payout: that would probably see the share price under even greater pressure.
Wet weather cut sugar earnings, despite a kick up in prices in the last quarter and costs rose at its aluminum smelter business. The company’s building business did better, but that included the recently-acquired Pilkington glass operations.
CSR said revenue rose 4% to $3.231 billion, and earnings before interest and tax (EBIT) excluding significant items fell 5% to $386.3 million.
CSR said EBIT was in line with previous guidance, noting that EBIT in its building products division was up 16% on a like for like basis.
"Despite the ongoing downturn in the east coast residential housing market, CSR increased earnings from its building products division by 75 per cent to $147.6 million," the company said in a statement with the profit announcement.
"As previously indicated to the market, the fall in raw sugar prices coupled with an unprecedented delay in the milling season due to unseasonable wet weather, resulted in earnings by the sugar division falling by 45 per cent to $71.7 million."
CSR Managing Director, Mr Jerry Maycock said in the statement that "external factors had weighed heavily on the Sugar milling result which impacted overall earnings; however he was pleased with the company’s progress.
"This is a period of consolidation as we invest across the business to improve efficiencies and take advantage of opportunities to sustain our market position and generate further growth," he said.
"Despite the ongoing weakness in the residential housing market, particularly in NSW, earnings from CSR’s existing businesses were up 16 per cent to $98.3 million. Growth in CSR’s Building Products division was assisted by the acquisition of Pilkington and DMS Glass last year and the restructuring of Bricks and Roofing divisions. Including the earnings from the glass businesses, EBIT increased 75 per cent to $147.6 million.
"In a tough market, we managed to increase our like for like earnings which is a credible result.
"The integration of our glass operations is progressing well and meeting our expectations. The glass business adds significant earnings momentum to the group and also broadens our product portfolio," said Mr Maycock.
He said as highlighted to the market last year, raw sugar earnings were impacted by a number of external factors including the $54 a tonne drop in average raw sugar prices, the higher Australian dollar and increased costs due to unprecedented wet weather which caused a significant delay in the milling season.
The company says it has a three year program underway in the raw sugar mills to upgrade critical equipment, improve cost position and increase sugar recovery.
"The Refined Sugar business performed strongly with earnings up 30 per cent to $41.1 million while CSR’s Ethanol business continued to grow with earnings increasing by 22 per cent," Mr Maycock said.
"We are confident that the capital works program in Sugar will enable CSR to maintain its competitive position in the global raw sugar market. The program is starting to deliver some reliability and unit cost improvements which we expect to continue.
"Through our refining, ethanol and renewable electricity business we are creating a more stable earnings platform which offsets raw sugar price variability and underpins our overall sugar business."
The result for aluminium was down marginally with EBIT falling by 4% to $136.7 million due to lower production, the higher Australian dollar and increased operating costs.
Some costs of carbon based inputs for aluminium have increased substantially over the year which has impacted the overall return from Aluminium.
The Aluminium business continues to provide CSR steady cash-flow for capital programs and other projects.
CSR said its property’s division reported EBIT of $45.4 million (2007: $69.7 million) returning to a more sustainable level, following the previous two years which benefited from large one-off transactions. The business has a solid development pipeline with a number of transactions currently under negotiation.
Mr Maycock said CSR had made good progress in the 2008 year in strengthening all key businesses and adding a substantial earnings stream through the glass acquisitions.
He said "This financial year will see a conclusion to much of the current investment program which we expect to deliver significant medium term earnings growth.
"We expect the like for like results of Building Products and Sugar to be ahead of last year and also see the full year earnings impact from the glass business. Aluminium should be in line with th
