High dollar driving 'lean' corporates
CSR said it planned to shed 150 staff from its Viridian glass business, west of Sydney, blaming the "persistently high Australian dollar" and weak construction market for multimillion-dollar losses in the glass business.
However, HSBC chief economist Paul Bloxham, formerly with the Reserve Bank, said the dollar could not be blamed for every economic problem.
He said the high dollar might be helping to fix Australia's weak productivity problem.
Figures released last week by the Bureau of Statistics showed labour productivity had improved 3.5 per cent in the 12 months to December. That compares with just 0.9 per cent labour productivity growth in 2011.
"Business models are being reassessed and those that do not work well are being adjusted. These sectors are becoming leaner and meaner," Mr Bloxham said.
Even so, CSR said, the stronger dollar had made it cheaper to import glass products on a "permanent" basis while construction activity was likely to grow at a slower-than-expected pace in coming months.
"A persistently high Australian dollar ... has put downward pressure on pricing and has enabled alternative import supply chains to be established which are now expected to become a permanent feature of the glass market in the future," the company said.
"[And] increasing energy and manufacturing costs ... have exacerbated Viridian's competitive position relative to imports."
Net profit would now be lower than expected for fiscal year 2013, between $30 million and $34 million, the company said.
This was down from guidance issued four months ago in which net profit was forecast to come in at between $35 million and $54 million.
CSR's shares dropped 9¢, or 4.3 per cent, immediately after the announcement of its job losses, but recovered through the day to close 2.9 per cent higher, at $2.16.
The 150 jobs will be lost after CSR closes its glass plant in Sydney's Ingleburn and consolidates two other western Sydney plants by next January.
In January key rival Boral said it would axe as many as 700 jobs - or one in three back-office positions - as it sought to "right-size" the company at the bottom of the building cycle.
NSW, where Boral's head office was based, would bear the brunt of the cuts.
HSBC's Mr Bloxham said there were signs the stronger dollar was helping to fix the country's productivity problem by forcing businesses, particularly manufacturers and retailers, to restructure in the face of more competition.
"The Australian dollar has now been high for quite some time ... it has been above parity for almost 2 years," Mr Bloxham said.
"While further government reform of the labour market and regulatory environment as well as improved infrastructure would help boost productivity, it seems market prices - in this case the floating exchange rate - are already helping, as the high Australian dollar has exposed many industries to more fierce international competition," he said.
Frequently Asked Questions about this Article…
A persistently high Australian dollar makes imported goods cheaper and increases international competition, putting downward pressure on prices and forcing businesses—especially manufacturers and retailers—to reassess and restructure their business models, according to economists quoted in the article.
CSR said the high Australian dollar and a weak construction market contributed to multimillion‑dollar losses at its Viridian glass division. The stronger dollar made imported glass products cheaper on a "permanent" basis, exacerbating Viridian's competitive position alongside rising energy and manufacturing costs.
CSR announced it would shed 150 staff from its Viridian glass business. The job losses follow plans to close the Ingleburn glass plant in Sydney and to consolidate two other western Sydney plants by next January.
CSR said net profit for FY2013 would be lower than previously expected, now forecast between $30 million and $34 million, down from guidance issued four months earlier of $35 million to $54 million.
CSR shares initially fell 9 cents (about 4.3%) immediately after the job‑loss announcement, but recovered through the day to close 2.9% higher at $2.16.
Yes. The article notes that rival Boral announced in January it would cut as many as 700 jobs—about one in three back‑office positions—as part of a "right‑size" move at the bottom of the building cycle, with NSW expected to bear the brunt of the cuts.
HSBC chief economist Paul Bloxham suggested the high dollar might be helping to address Australia's weak productivity by forcing firms to restructure. Supporting data from the ABS showed labour productivity improved 3.5% in the 12 months to December, up from 0.9% in 2011. However, Bloxham also cautioned the dollar can't be blamed for every economic problem.
Investors should monitor company profit guidance, announcements about job cuts or plant closures, exposure to import competition, and signs of slower construction activity—factors highlighted in the article as drivers of margin pressure for firms like CSR and Boral.
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