CSR farewell leaves a bitter taste

WHEN the retiring Ian Blackburne chairs the CSR annual meeting for the final time today, he will leave the company in a very different position from when he started his eight-year reign.

By InvestSMART · 7 Jul 2011

By InvestSMART ·
7 Jul 2011

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WHEN the retiring Ian Blackburne chairs the CSR annual meeting for the final time today, he will leave the company in a very different position from when he started his eight-year reign.

Now, a pure-play building materials company, the CSR name remains, but the iconic sugar business - with a proud 156-year history - is gone, sold to Singapore conglomerate Wilmar International almost a year ago.

Dr Blackburne announced his retirement in May, and said the $1.75 billion sale of the sugar and renewable energy division, now called Sucrogen, was a milestone.

''With the sale of Sucrogen successfully completed, and also having returned part of the sale proceeds to shareholders, I feel it is an appropriate time to retire from the board,'' he said at the time.

Having served on the board since 1999, he was appointed chairman after the demerger of Rinker in 2003. His replacement is Jeremy Sutcliffe, who served briefly as interim chief executive last year, primarily to oversee the sale of Sucrogen.

Shareholders may not hold sweet memories of another legacy of Dr Blackburne's reign - the acquisition of the Viridian glass business, then two separate businesses, Pilkington and DMS, in 2007 for $865 million. The business suffered in the global crisis and had its value written down by $651 million, including $121 million last financial year.

Dr Blackburne defended the decision to acquire Viridian and said the business would return to profitability when the commercial construction market recovered.

But the Australian Shareholders Association's Stephen Matthews was on the warpath yesterday, calling Viridian a ''glass albatross'' that would continue to restrict shareholder returns. ''The problem was they bet the bank on it and lost,'' he said. ''It was too big an acquisition for them and I suspect their due diligence was not good.''

Mr Matthews said the Viridian writedowns had also reduced the amount of proceeds distributed to shareholders, given a large chunk of the $1.75 billion received had been used to repay debt. Of the proceeds, shareholders received $800 million in a special dividend. The rest was used to bolster the balance sheet, with the company holding more than $450 million in cash.

The company hosted an investor tour of its Viridian glass factory in Clayton last month as it flagged the positives in the business. And while new chief executive Rob Sindel is well regarded by investors, as with other building materials companies, CSR has to contend with flat residential housing starts and a weak commercial property market.

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Frequently Asked Questions about this Article…

Why is CSR’s chairman Ian Blackburne retiring and what state is CSR in now?

Ian Blackburne announced his retirement after eight years as chairman. Under his tenure CSR became a pure-play building materials company after selling its long-standing sugar and renewable energy arm (now called Sucrogen). He cited the completed $1.75 billion sale of the sugar business and the return of part of the proceeds to shareholders as reasons it was an appropriate time to step down.

What happened to CSR’s sugar business and who bought it?

CSR sold its sugar and renewable energy division, now called Sucrogen, to Singapore conglomerate Wilmar International for about $1.75 billion. The sale transformed CSR into a focused building materials group and the transaction was completed almost a year before the article was published.

How much of the Sucrogen sale did CSR return to shareholders and what did the company keep?

From the roughly $1.75 billion sale proceeds, shareholders received an $800 million special dividend. The remainder of the proceeds was used to repay debt and strengthen the balance sheet, leaving CSR with more than $450 million in cash on hand according to the article.

What is the Viridian acquisition and why has it hurt CSR shareholder returns?

CSR acquired the Viridian glass business (the Pilkington and DMS businesses) in 2007 for $865 million. The business struggled during the global financial crisis and has been written down by $651 million overall, including a $121 million write-down in the last financial year. The Australian Shareholders Association criticised the deal, saying the writedowns reduced the proceeds available to return to shareholders.

Who is replacing Ian Blackburne and who runs CSR’s day-to-day operations now?

Jeremy Sutcliffe was named as Blackburne’s replacement as chairman; he previously served briefly as interim chief executive primarily to oversee the Sucrogen sale. The company’s chief executive is Rob Sindel, who is regarded positively by investors.

What near-term market challenges could affect CSR’s building materials business?

CSR faces sector headwinds common to building materials companies, including flat residential housing starts and a weak commercial property market. Those conditions can limit demand for construction materials and slow a recovery in related businesses such as Viridian glass.

Has CSR signalled any recovery prospects for the Viridian glass business?

CSR has defended the Viridian acquisition and said the business would return to profitability when the commercial construction market recovers. The company also hosted an investor tour of its Viridian glass factory to highlight positives in the business, indicating management expects recovery to be linked to broader construction market improvement.

What should everyday investors take away about CSR after these changes?

Everyday investors should note CSR is now focused on building materials after selling its historic sugar business and returning a significant special dividend to shareholders. However, legacy issues from the Viridian acquisition and current weakness in housing and commercial property markets remain risks to near-term performance. Monitoring cash levels, any further writedowns, and signs of construction market recovery will be important.