The slump in building approvals for September had an obvious impact on CSR.
CSR Ltd says its net profit excluding items for the six months to September 30 was $71.7 million down from the $72.3 million earned in the same period of last year.
CSR, a sugar and aluminium producer and building materials maker, has been battling declining construction markets.
Its NSW business has been hard hit by the slump in housing in this market, but now Victoria and Queensland markets are slumping as well.
Earnings were boosted by the continuing impact of the expansion in its glass business, but that was about the only really good news.
Sugar was better, but won’t produce a dramatic surge in full year earnings, while aluminium is being hurt by weak demand and global prices as the world economy slides towards recession.
The first home owners grant will help boost demand next year, but the expected rise in unemployment to 5% and more next year from around 4.3%, will put a lid on any significant improvement from that sector.
The company said in its October 16 earnings update profit for the year to March 2009 were likely to be flat on last year. There seems no reason to change that view at the moment.
Shares in CSR, which declared an unchanged interim dividend of 6 cents, closed up 4 cents at $2.22 yesterday.
CSR said earnings before interest and tax (EBIT) rose 12% to $177.4 million for the six months to the end of September from the same period of 2007.
It said the building products (including Viridian Glass) EBIT was up 13% in "challenging residential construction market"
Successfully finalised bank facilities to replace Medium Term Note maturing in March 09; ,significant operational improvement initiatives have been accelerated across building products portfolio to manage through the cycle and better position CSR for cyclical upturn.
"Synergies from glass acquisitions being achieved ahead of target; sugar earnings up 24%, reflecting higher realised raw sugar price and improved earnings
"Net profit after tax before significant items down 1% to $71.7 million, reflecting higher finance costs relating to glass acquisitions. Increased provision for asbestos liability as a significant item resulted in net profit after tax including significant items down 51% to $32.9 million
"The unprecedented volatility in markets presents a very challenging period across all our business, but particularly in Building Products,” said CEO Jerry Maycock.
“CSR is addressing these challenges head on, by implementing a number of business improvement initiatives across our portfolio.
"We are encouraged by recent Government announcements to provide much needed stimulus to the housing market, however the benefits of these are more likely to be realised in the 2010 financial year.
“We continue to make progress in increasing the stability of earnings in our Sugar business and the increased realised raw sugar price will modestly assist earnings this year, with additional benefit in coming seasons.
“As previously advised to the market, for the full year, CSR’s group EBIT before significant items is expected to be in line with last year.
“Looking forward, we are now well advanced with our capital reinvestment program across our portfolio with expenditure to significantly reduce in 2010. The earnings benefits from these projects, together with a reduced spend will result in significantly improved cash flow generation from next financial year.
“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 medium term,” Mr Maycock said.
"CSR has thoroughly reviewed opportunities to restructure its portfolio of businesses and concluded that a restructure may create additional shareholder value under more appropriate market conditions. The potential for a value creating restructure remains under active consideration."
