THE DISTILLERY: CSR squander

Commentators question the events leading up to CSR's layoffs, with one noting millions were wasted on poor asset purchases.

One hundred and fifty jobs were cut from CSR’s Viridian glass business yesterday as Chinese competitors and the expensive Australian dollar continued to bite. While the story is somewhat familiar to the broader manufacturing sector, two columnist this morning are asking whether these jobs should ever have been CSR’s to cut. Or to put it another way, what the hell were they thinking when the bought the business?

Fairfax’s Elizabeth Knight has the best handle on CSR’s history, so we’ll start with how a proud company managed to get into this mess.

“The 20-year history of the once-great diversified conglomerate CSR is littered with monumentally large and poor asset purchases. The most recent, and arguably one of the worst, was buying and pumping further money into two large glass businesses in 2007 and 2008 for about $1.2 billion. If the chief executive responsible for those decisions still held office he would probably be packing his desk photos in cardboard boxes. But he has already walked the plank after the second writedown of the glass business Viridian (formerly Pilkington). The first $280 million hit was in 2009; the second of $250 million was made in 2010.”

As The Australian’s John Durie explains, this might look like a move of utter suicide in hindsight, but back in the day of was part of a strategy.

“Can a good strategy be killed by poor timing? It's a moot point and some would argue a good strategy is, in part, because of its timing. Former CSR boss Gerry Maycock pushed ahead with the glass expansion at what, in hindsight, was precisely the wrong time ahead of the GFC and China's expansion. Just as this has meant trouble for steel, it has meant trouble for local glass operations as cheaper Chinese product floods the world. Maycock has maintained it was the right strategy at the wrong time. Downstream assets, that is, glass windows, were added with the idea that the glass could be provided in-house, but that doesn't look so clever now.”

As Business Spectator’s Stephen Bartholomeusz points out, CSR’s Viridian business isn’t alone as an Australian manufacturer hurting thanks to the inflated currency, which would otherwise allow for more international glass sales at a time when the domestic market is subdued.

“The combination of the dollar, cautious consumers, capacity-constrained governments and technological change is creating the kind of pressure on trade-exposed businesses last experienced when the tariff walls started coming down in the 1970s and 1980s. While there were fears that the winding back of the tariff protection to negligible levels would devastate manufacturing industry, and there was considerable trauma – as well as restructuring, plant closures and job losses – those businesses that survived emerged as far more efficient and competitive entities.”

Elsewhere, Fairfax’s Adele Ferguson gets props from The Distillery for a piece where she offers a dejected summation of the extent to which Infrastructure Australia, the body set up by Kevin Rudd to eliminate the practise of pork barrelling infrastructure projects, has sunk from that promise.

“The neutering of IA became apparent when the government rolled out the NBN without consultation and 10 days out from an election it committed $2 billion to the Parramatta to Epping Rail Link project in Sydney. The rail link didn't qualify for IA's priority list or the state government's Metropolitan Transport Plan 2010. It did qualify for votes though. So did a series of rail, road and port infrastructure projects that qualified for funding despite their absence from the IA list on the basis that more work was needed.”

It’s a great article that highlights the need for coherent infrastructure planning ($770 billion to be precise), the promise of a beloved candidate to deliver it and the erosion of that promise by political interest. Many business commentators are weak when they cross into the political sphere, but Ferguson puts on a clinic here.

The Australian’s Richard Gluyas contacted some domestic banks on a rumour that one of them was contemplating offloading some risky real estate loans to an off-balance sheet vehicle in the lead up to regulatory moves to make the financial sector shock proof. They said they have no such plans, but the columnist argues the attraction is obvious.

In other company news, The Australian’s Barry Fitzgerald writes that the iron ore selloff has slashed $1 billion from the net worth of founder Andrew ‘Twiggy’ Forrest. But with the infrastructure stake sale on the go, Durie adds that this is the year that financial respectability can be achieved by Fortescue, which has been the subject of some derision by certain market players.

The Australian Financial Review’s Chanticleer columnist Tony Boyd says David Jones investors should expect chief executive Paul Zahra to talk at length about the company’s long overdue investment in its old technology systems.

Boyd's colleague Matthew Stevens runs the numbers on BHP Billiton’s capex program and the amount of assets it would have to sell to start meeting those requirements.

Fairfax’s Tim Colebatch goes all Shakespearean on us for the ousting of Ted Baillieu as premier of Victoria, with this passage from Julius Caesar: “The evil that men do lives after them; The Good is oft interred with their bones. So let it be with Caesar.”

The point is that Baillieu did some good things as Caesar – though the writer points out the man himself would be better cast as the aristocrat Brutus – but not enough at the right time to make it count.

Meanwhile, The Australian’s contributing economics editor Judith Sloan says US president Barack Obama’s call for the minimum wage to be raised to $9 an hour from $7.50 could lead to lower employment and less training for low-paid workers, according to research.

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