Forecast grim as CSR earnings, share price in free fall

THE building materials supplier CSR has warned investors that Australia's weak construction market and low aluminium prices will continue to drag on its profits but defended management's performance despite its shares trading at 27-year lows.

By InvestSMART · 13 Jul 2012

By InvestSMART ·
13 Jul 2012

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The chairman, Jeremy Sutcliffe, said both residential and commercial construction markets remained under siege, housing starts falling 13 per cent in the March quarter.

"Our core Australian residential and commercial construction markets are under extreme pressure, despite strong underlying demand for housing," Mr Sutcliffe told the company's annual meeting yesterday.

With the weakness expected to persist, the chief executive, Rob Sindel, said the company's earnings were likely to be weighted towards the second half. He forecast housing starts of about 135,000 for the year ending March 2013, down from 148,000 the previous year.

Buffeted by the high Australian dollar, persistently weak construction markets and the introduction of the carbon tax, CSR shares have been in free fall, losing 46 per cent in the past year to trade near historic lows. The falling price of aluminium has had a particular recent impact on the company's share price.

While some shareholders were sympathetic to the factors largely out of the company's control, most were angered at the company's poor performance.

One shareholder sarcastically congratulated management for the company's share price performance and questioned whether the board's remuneration policies would be reviewed.

"It is ... a fair question to ask whether our remuneration practices are appropriate in a year when earnings were down 26 per cent and the share price fell 46 per cent," said Mr Sutcliffe, who oversaw the sale of the group's sugar business in December 2010 for CSR to become purely a building player.

The much debated carbon tax was also a hot issue for concerned shareholders at the meeting. CSR has been one of the more vocal industry critics of the tax.

"The reality is any tax is a bad tax when we're operating in an increasingly regulated and internationally competitive world that we live in," Mr Sutcliffe said.

CSR's glass business Viridian - the subject of repeated writedowns since its acquisition in 2007 - has continued to bleed money in the face of vicious competition from vastly cheaper imports, mainly from China. Shares in CSR fell 3?, or 2.4 per cent, to $1.20 yesterday.

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Frequently Asked Questions about this Article…

Why did CSR warn investors about its profit outlook?

CSR warned investors that Australia’s weak residential and commercial construction markets and falling aluminium prices will continue to drag on profits. The company also cited other pressures such as a high Australian dollar and the introduction of the carbon tax.

How badly has the CSR share price fallen recently?

CSR shares have plunged about 46% over the past year, trading near 27‑year lows. The article notes the shares fell 2.4% (about 3¢) to $1.20 on the most recent trading day mentioned.

What did CSR management say about the timing of future earnings?

CEO Rob Sindel said CSR’s earnings were likely to be weighted towards the second half of the year. Management expects the weak market conditions to persist, affecting near‑term results.

How are housing starts affecting CSR’s outlook?

CSR’s chairman, Jeremy Sutcliffe, said housing starts fell 13% in the March quarter. Management forecast housing starts of about 135,000 for the year ending March 2013, down from 148,000 the previous year, which contributes to weaker demand for CSR’s building products.

What impact has the carbon tax had on CSR?

CSR has listed the carbon tax as one of the factors weighing on the business. Chairman Jeremy Sutcliffe was vocal at the annual meeting, calling any new tax a negative in an increasingly regulated and internationally competitive environment.

What is the situation with CSR’s Viridian glass business?

Viridian, CSR’s glass business acquired in 2007, has been the subject of repeated writedowns and has continued to lose money amid fierce competition from much cheaper imports, mainly from China.

How have shareholders reacted to CSR’s poor performance?

Shareholder reactions were mixed but largely critical. While some were sympathetic to external pressures, many were angry about the company’s poor performance and questioned whether board remuneration practices should be reviewed after earnings fell 26% and the share price dropped 46%.

What external factors are dragging on CSR’s profits according to the article?

The article identifies several external pressures: a high Australian dollar, persistently weak construction markets (both residential and commercial), falling aluminium prices, competition from cheap imports affecting the glass business, and the introduction of the carbon tax.