No wonder CSR shares eased in yesterday's generally upbeat market.
There was a combination of factors: the Aussie dollar went overt 93 US cents on the back of the rate rise, CSR reported a poor first half profit, and forecast a lower result for the full year till next March, and crucially, it ruled out any break up of the group, especially hiving off the troubled sugar business.
That's even though lower prices for the commodity and the strong Australian dollar will offset improved returns from building and acquisitions over the full year.
CSR said interim earnings fell 34% and announced the decision of a six month review of the company commissioned when Jerry Maycock took over as CEO last year.
The shares fell 8c to $3.26, clipping the recent small recovery in sentiment around the stock as some investors become convinced there could be a decision to sell the sugar division, or joint venture it in a deal.
Although it did not rule out a sale in the long term, CSR said it decided not to sell or substantially change any divisions because the building materials and sugar industries were both at the bottom of their business cycles.
"It is by no means certain what the end gain looks like, regarding industry structure, and we believe that uncertainty is unhelpful for restructuring right now," Mr Maycock said of the review.
"After a thorough analysis, the board has concluded it is not in the best interests of shareholders to restructure CSR's portfolio now," Mr Maycock said.
"Nevertheless, we do believe there will be opportunities in future to create value from structural change."
That means no buyers who would want to pay a fair and reasonable price, but probably buyers more akin to vultures picking up distressed businesses at the bottom of the business cycle.
It is also probably recognition that the credit markets problems has precluded much interest from private equity, especially in businesses operating in difficult circumstances and industries.
There probably also was a recognition also of the political problems faced in Queensland dealing with an influential rural group (especially in an election campaign)
CSR's said net profit fell by 33.8% to $72.3 million while net profit including significant items was $67.5 million, down 38.2%, for the half year ending September 30.
"For the full year, despite an expected 70 to 75 per cent lift in building products earnings, CSR's full-year earnings before interest and tax (EBIT) is expected to be around 5% cent lower due to the downturn in sugar and a lower result from property," Mr Maycock said.
Mr Maycock said most areas of the sugar business should improve in the second half, but sugar milling would continue to be affected by the likely fall in raw sugar prices to below $A300 a tonne and the higher Australian dollar, triggering a 40%- 45% fall in annual EBIT.
"Net profit will also be impacted by increased interest costs due to the recent acquisitions and a higher average tax rate."
Mr Maycock said the timing of upturns in the sugar and building industries were still not apparent, and the benefits of $400 million worth of capital spending by CSR over the past three years and recent acquisitions had not yet been realised.
Mr Maycock said CSR was still keen to expand its operations and was eyeing sugar-related acquisitions in Brazil and Asia.
He said a 46% lift in building products earnings to $66.3 million, helped by restructuring the brick and roofing operations, and the $690 million acquisition of glass company, Pilkington Australasia, in June, was offset by a 69 % drop in sugar earnings to $22.4 million.
"In Aluminium, we have continued hedging at attractive levels to lock-in future earnings, while Property's results are expected to return to a more sustainable level in the range of $35 million to $40 million per annum, depending on the outcome of transactions currently in negotiation," Mr Maycock said.
Raw sugar prices dropped by $71 per tonne compared with the previous corresponding period.
In other areas, aluminium earnings fell 3% to $65.9 million and the property earnings fell 22% to $7.6 million, which was a real killer because earnings in this area had been making up for the weaker returns from sugar and building products over the last couple of years.
The company reported a 2.4% fall in revenue to $1.552 billion from the previous corresponding period.
A six cents interim dividend was declared, unchanged from the previous corresponding period.
The key part from the strategic review decision reads:
"CSR's earnings yet to benefit from almost $900 million of acquisitions over the last six months and recent and pending investment in growth projects, and the improved medium term outlook for markets in Sugar and Building Products, based on fundamentals and enhanced by opportunities in energy efficiency and renewable energy.
"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," Mr Maycock said.
"After a thorough analysis the Board has concluded it is not in the best interests of shareholders to restructure CSR's portfolio now. Nevertheless we do believe there will be opportunities in future to create value from structural change. We are intent on growing all our businesses and ensuring they have the appropriate scale and structure to take advantage of such opportunities."
