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 does it mean for CSR investors?

Ian Blackburne is retiring after eight years as CSR chairman. He said the $1.75 billion sale of the sugar and renewable energy division (now Sucrogen) and the return of part of the proceeds to shareholders made it an appropriate time to step down. For investors, his retirement coincides with CSR's transition to a pure-play building materials company and leadership change that could influence strategy and investor returns.

What did CSR sell and who bought Sucrogen?

CSR sold its sugar and renewable energy division, now called Sucrogen, to Singapore conglomerate Wilmar International for $1.75 billion. The sale was completed around a year before the article and was described by Blackburne as a milestone for the company.

How were the proceeds from the Sucrogen sale used and how much did shareholders receive?

Of the $1.75 billion proceeds, shareholders received $800 million as a special dividend. A large portion of the remaining proceeds was used to repay debt, and CSR ended up holding more than $450 million in cash, strengthening the company’s balance sheet.

What is the Viridian acquisition and why has it been controversial for CSR investors?

In 2007 CSR acquired the Viridian glass business (Pilkington and DMS) for $865 million. The business suffered during the global financial crisis and CSR wrote down its value by $651 million, including $121 million in the last financial year. Critics, including the Australian Shareholders Association's Stephen Matthews, called Viridian a 'glass albatross' and said the writedowns restricted shareholder returns.

How has CSR addressed concerns about Viridian's performance?

CSR has tried to highlight positives in Viridian by hosting an investor tour of its Clayton glass factory and management says the business should return to profitability when the commercial construction market recovers. New CEO Rob Sindel is well regarded by investors, but Viridian’s recovery is tied to broader market conditions.

Who is replacing Ian Blackburne as chair and who is leading CSR's executive team?

Jeremy Sutcliffe has been named Blackburne’s replacement as chairman; he briefly served as interim chief executive last year overseeing the Sucrogen sale. Rob Sindel is the company’s new chief executive and is viewed positively by investors.

What are the main risks and headwinds CSR faces as a building materials company?

As a pure-play building materials company, CSR faces an environment of flat residential housing starts and a weak commercial property market. These factors can weigh on demand for building materials and affect revenue and profitability until markets recover.

Did Viridian writedowns affect the amount returned to CSR shareholders?

Yes. According to commentary in the article, the Viridian writedowns reduced the amount available to distribute to shareholders because a large part of the $1.75 billion sale proceeds was used to repay debt. Shareholders still received an $800 million special dividend, but writedowns constrained the total distribution.