CSR's glass act still irks investors

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 than 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 than 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 the Singaporean conglomerate Wilmar International 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.

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

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

"Viridian, in your mind, is a failure," he said at last year's meeting. "In my mind, it is an opportunity that is going to take a little bit longer to get there. Yes, we've done some things wrong [but] we've done our mea culpa on that."

A representative of the Australian Shareholders Association, 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 write-downs had also reduced the amount of proceeds distributed to shareholders, given a large chunk of the $1.75 billion received for the sugar business 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, ready to pounce on suitable bolt-on acquisitions.

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Frequently Asked Questions about this Article…

Who is Ian Blackburne and why is he retiring as CSR chairman?

Ian Blackburne has served on the CSR board since 1999 and became chairman after the Rinker demerger in 2003. He announced his retirement in May and is stepping down after overseeing major changes at CSR, including the sale of its sugar and renewable energy business. Blackburne said completing that sale and returning part of the proceeds to shareholders made it an appropriate time to retire.

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

CSR sold its iconic sugar and renewable energy division, now called Sucrogen, to Singaporean conglomerate Wilmar International for $1.75 billion. The sale took place a year before the article and ended a 156-year chapter of CSR’s sugar operations.

How did CSR use the $1.75 billion proceeds from the sale of Sucrogen?

CSR returned $800 million to shareholders as a special dividend and used the remainder to repay debt and strengthen the balance sheet. The company held more than $450 million in cash after the transactions, earmarked for potential bolt-on acquisitions.

Who is Jeremy Sutcliffe and what role will he play at CSR?

Jeremy Sutcliffe is Blackburne's replacement as CSR chairman. He previously served briefly as interim chief executive to oversee the sale of Sucrogen, so he already has direct involvement with CSR's recent strategic changes.

What was CSR's acquisition of Viridian glass and why has it disappointed investors?

In 2007 CSR acquired the Viridian glass business through purchases of Pilkington and DMS for $865 million. The business struggled through the global financial crisis, leading to total write-downs of $651 million (including $121 million last year). Critics, including a representative of the Australian Shareholders Association, called Viridian a 'glass albatross' that has limited shareholder returns.

Has CSR defended the Viridian purchase and what are its expectations for the business?

Yes. Ian Blackburne has defended the decision to buy Viridian, saying the business is an opportunity that will take time and should return to profitability when the commercial construction market recovers. He also acknowledged mistakes and described management's response as a 'mea culpa.'

How have Viridian write-downs affected CSR shareholder returns?

The significant Viridian write-downs reduced reported asset value and forced CSR to use a portion of sale proceeds to shore up the balance sheet and repay debt, which in turn limited the cash available to distribute to shareholders. The company still paid an $800 million special dividend but kept the rest to strengthen finances.

What is CSR's strategy now that it is a pure-play building materials company?

After selling Sucrogen, CSR is focused on being a pure-play building materials company. With more than $450 million in cash on hand following the sale and debt repayment, CSR says it is positioned to pursue suitable bolt-on acquisitions to grow its building materials business.