CSR (ASX:CSR)

Rob Sindel
CEO
Market Cap (AUD): 1.99B
Sector: Materials
Last Trade (AUD): 4.02 +0.02 (+0.5%)
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1. About

CSR Limited is the most trusted and recognised brand names in providing building products for residential and commercial construction.

CSR Limited is engaged in the manufacture and supply of building products in Australia and New Zealand. The Company operates through four segments: Building Products, Glass, Aluminium, and Property. Its Building Products include Lightweight Systems, such as Gyprock plasterboard and Cemintel fibre cement; Insulation, including Bradford and Martini insulation, AFS walling systems, Bricks. Its Glass business includes the operations of Viridian, an architectural glass provider and a manufacturer of float glass and hard coated performance products. The Aluminium business unit relates to its interest in Gove Aluminium Finance Limited, which in turn holds an interest in the Tomago aluminum smelter. Its Property business unit is engaged in the sale of former operating sites by advancing the sites through various stages of the development cycle. In addition, this business is also involved in a small number of large-scale developments in New South Wales, Queensland and Victoria.

2. Business model

 

The Company operates the following divisions:[1]

 

Divisions

Revenue ($’M)

% of total Revenue

% of Profit (before Tax, Depn & Amort)

Profit drivers[2]

Building Products

$1,672.2

64.2%

61.9%

  • Trading revenue from Building Products was $1.7 B, up 6%, with higher volumes and improved pricing across most products and segments
  • EBIT was up 6% to $214.1 M with earnings reflecting the benefit of improved factory performance, price increases, and cost management
  • EBIT margin of 12.8% was down slightly from 12.9% as improved volume, pricing and product mix offset $9 M in higher energy costs

Glass

$368.5

14.1%

4.2%

  • Trading revenue of $368.5 M on was down 3% following the sale of glass processing sites in Cairns, Darwin, and Perth
  • Viridian’s EBIT of $3.5 M in YEM18 was impacted by further losses in its Commercial business
  • The balance of the Viridian businesses improved performance with increased pricing and product mix, offset by $4 M in higher energy costs

Aluminium

$565.5

21.7%

22.6%

  • GAF’s sales volumes of 212,801 tonnes were up 1% due to operational improvements at Tomago. Trading revenue of $565.5 M was up 11% reflecting the 10% improvement in the realised aluminium price
  • EBIT of $79.5 M was down 15% largely due to the new power supply contract which took effect from November 2017. This increased total power-related costs by $34.3 M for the five months of YEM18 that the new contract was in place

Property

N/A

N/A

11.2%

  • CSR’s Property division recorded EBIT of $47.8 M, up from $15.0 M in the prior year
  • As of 31 March, 2018, Chirnside Park development project has delivered $31.4 M in EBIT

3. Strategy

    

Key strategies include:[3]

    

The Company is building on its strategy covering five key areas to grow its building products businesses over the medium term.

Strengthen and invest

  •   Increased exposure to stable detached market
  •   Operational flexibility
  •   Land release

 

Smarter, faster, easier

  • Greater share of multi-residential market
  • Speed of construction

 

Changing the way the Company live and work

  • Growth and increased share in all market segments
  • $75 million capacity expansion
  • New product development
  • Inclose façade systems

 

Comfort and energy efficiency

  • Market expansion from glass wool to polyester, solar, battery storage and ventilation
  • Leading energy solutions provider to new build market

 

Customer

  • Maintain market leading position
  • Invest in digital capability
  • Investment in trade centres and retail capabilities
  • Data analytics to provide customer preferences and trends

 

Looking at the outlook for the year ending 31 March 2019 (YEM19), CSR confirmed:

  • Building Products and Viridian – Recent building approvals remain strong with detached housing at its highest level in two years. This supports the current level of activity for the year ahead. Viridian’s operational performance in Australia and New Zealand have improved in recent months with the business on track to improve earnings in the year ahead.
  • Currently, 74% of net Aluminium exposure for YEM19 is hedged at an average price of A$2,590 per tonne (excluding ingot premiums) as of 30 April 2018. Earnings will be impacted by the full year effect of higher power-related costs.
  • Two Property transactions were announced in the first week of YEM19 resulting in EBIT of approximately $37 million. This included the completion of Stage 5 at Chirnside Park, Vic and the sale of the 10-hectare surplus industrial site at Horsley Park, NSW which is expected to be recorded in the second half of the year.

4. Markets

 

The Company operates in markets including:[4]

 

Industry (Australia)

Industry Revenue

Growth Rate (annual 13-18)

Plaster Product Manufacturing

$2 billion (2018)

3.9%

Concrete Product Manufacturing

            $2 billion (2017)

 (0.5%)

Glasswool, Stone and Non-Metallic Mineral Product Manufacturing

$2 billion (2017)

1.3%

Clay Brick Manufacturing

929 million (2017)

3.8%

Glass and Glass Product Manufacturing

$4 billion (2017)

1.9%

5. Competition

 

Major competitors include:[5]

 

  • Boral Limited (ASX:BLD)
  • Fletcher Building Limited (Australia) (ASX:FBU)
  • HeidelbergCement AG ((ETR:HEI)

6. History

 

1855[6]  

CSR was established in 1855

 

1857   

A new holding company--the Victoria Sugar Company--was formed jointly by CSR shareholders and Victorian business interests

  

1939   

CSR acquired shares in a chemicals plant in Sydney

  

1942    

A new plaster mill was introduced in Sydney

  

1948    

The wave of expansion culminated in the formation of a new wholly-owned subsidiary, CSR Chemicals

  

1959   

The acquisition of the Bradford Insulation Group gave CSR a major share of the insulation products market throughout Australia

  

1962-63   

The company opened new research centers in Brisbane in 1962 and in Sydney in 1963

  

1965    

It acquired a 50 percent share--with Blue Metal Industries--in Ready Mixed Concrete (RMC)

  

1969   

Takeover of Wunderlich Ltd., a large manufacturer of roof tiles, asbestos cement products, and architectural metal products

  

1987   

CSR began the process of changing the company from diversified resources and industrial group to a diversified manufacturing company in building and construction materials and sugar

  

1988   

The acquisition of the U.S. Rinker Materials Corporation gave CSR a large proportion of the Florida concrete and quarry products market

  

1990   

CSR acquired ARC America, a large quarry and concrete products operator with interests in 20 states including Ohio, Indiana, Michigan, Washington, California, Nevada, Texas, and Florida

  

1997  

CSR closed 38 "less efficient" plants and generated A$240 million from the sale of non-core assets

  

1999   

CSR  sold its South Australian and Victorian softwood plantations and sawmills to a U.S.-based timber partnership, RII Weyerhaeuser World Timber Fund Pty

CSR America has entered into a letter of intent to purchase two quarries from Florida Rock, Inc. as part of CSR’s continued expansion in the US construction materials sector

  

2000   

CSR Limited and Boral Limited have entered into a joint venture to investigate opportunities to establish a joint e-commerce selling hub across the Australian Building and construction industry

CSR Limited and Billiton Aluminium Australia Pty Ltd have signed a non-binding heads of agreement for Billiton to offer to acquire CSR’s interest in the Gove alumina refinery and bauxite mine in the Northern Territory

 

2001   

CSR Limited subsidiary Rinker Materials Corporation (“Rinker”) has signed an agreement to make its first “bolt on” acquisition to the American Limestone Corporation (“ALC”) operation sit acquired

CSR America, Inc.(CSRA) has further strengthened its position as the leading construction materials company in Florida with the bolt-on acquisition of a concrete and concrete block business in western Florida

 

2002   

Its 50-50 cement joint venture with Hanson PLC, Australian Cement Holdings Pty Ltd(ACH), merged with Queensland Cement Ltd (QCL), to form Australia’s largest cement group

CSR Limited subsidiary Rinker Materials Corporation(“Rinker”) has successfully completed the US$540 million acquisition of Kiewit Materials Company

 

2003   

CSR Limited welcomed the ACCC's approval of the merger of Australian Cement Holdings (ACH) - CSR’s 50-50 cement joint venture with Hanson PLC

 

2004   

CSR Limited has reached an agreement with Man Group plc to purchase Man Group’s 25% interest in the Sugar Australia Joint Venture and in New Zealand Sugar Company Limited

 

2005   

CSR Limited (CSR) announced the acquisition of two businesses which expand the CSR Building Products portfolio into adjacent markets of ventilation and metal roofing

 

2006    

CSR expanded the fuel ethanol capacity

 

2007   

CSR completed DMS Glass acquisition following ACCC response

CSR acquired DMS Glass, enhancing position in value-added glass distribution

 

2009   

CSR Sugar licensed Sugar Booster technology for development of sugar and biofuels applications to Syngenta

 

2010   

Wilmar received OIO approval for Sucrogen acquisition

Wilmar received FIRB approval for Sucrogen acquisition

Bright Food A$1.75 billion conditional offer to acquire Sucrogen

 

2012   

CSR established glass joint venture in New Zealand

 

2014   

CSR acquired AFS Products Group Ltd

 

2015   

CSR and Boral formed their Australian east coast brick joint venture

 

2016   

CSR commenced an on-market share buy-back of its ordinary shares of up to $150 million

 

2017   

CSR signed an agreement with the federal government for a $3 million grant. The grant will support the Company’s innovation and development of an Australian-first high-performance building facade system

CSR Limited announced the sale of its Monier Roofing manufacturing site located at Rosehill, NSW

7. Team

 

Board of Directors[7]

 

Jeremy Sutcliffe – Chairman, Member of Risk & Audit Committee and Remuneration & Human Resources Committee

John Gillam – Non-Executive

Christine Holman – Non-Executive Director

Mike Ihlein – Non-Executive Director

Matthew Quinn – Non-Executive Director

Penny Winn – Non-Executive Director

Rob Sindel – Executive Director

David  Fallu – Chief Financial Officer

Debbie Schroeder – Company secretary

 

Management Team

 

CSR Corporate Management

Rob Sindel – Managing Director

David Fallu – Chief Financial Officer

Luke Murph – Executive General Manager, Human Resources

Sara Lom – Group Financial Controller

Marion Johnstone – Group Treasurer

Debbie Schroeder – Company Secretary

Andrée Taylor – General Manager, Investor Relations, and Corporate Communications

Sean Ventris – Head of Legal

 

Building Products

Ian Hardiman – Executive General Manager, New Business, Innovation and Technology

Peter Moeller – Executive General Manager, Viridian Glass

Nick Pezet – Executive General Manager, PGH Bricks & Pavers

Andrea Pidcock – Executive General Manager, Lightweight Systems

Anthony Tannous – Executive General Manager, Bradford Insulation

Steve Darwell – General Manager, AFS

Andrew Rottinger – General Manager, Hebel Lightweight Concrete

Drew Spiden – General Manager, Monier Roofing

 

Property

Andrew Mackenzie – General Manager, Property

 

Aluminium

Mark White – General Manager, Gove Aluminium Finance

 

Workplace Health Safety and Environment

Linden Birch – Group Sustainability Manager

Scott Lewis – Group Workplace Health and Safety Manager


read more

8. Financials

 

2019 Half Year Results Presentation

 

Financial Year 2017/18 (ended 31 March):[8]

 

Divisions

Revenue ($’M)

% Change

Profit (before Int, Tax, Debt & Amort) ($’M)

% Change

Building Products

$1,672.2

6.0%

$265.4

5.2%

Glass

$368.5

(3.0%)

$18.1

(10.8%)

Aluminium

$565.5

10.6%

$97.1

(17.7%)

Property

N/A

N/A

$48.1

214.4%

Total

$2,606.2

5.6%

$428.7

5.6%

9. Risk

 

Major risks include:[9]

 

Risk Management at CSR is an iterative process, each cycle enhances its understanding of its risks and deepens its engagement with stakeholders including employees, contractors, regulatory bodies, government, shareholders and the community.

 

Aluminium, currency and debt markets

  • CSR’s results are impacted by movements in the global US dollar price for aluminium and currency fluctuations.
  • Some risks related to the aluminium operation cannot be hedged including regional price premiums, global relativity of price of electricity and inputs such as petroleum coke as well as changes to the joint venture structure.

 

Australian construction markets and competitor activity

  • Approximately 50% of CSR’s total revenue is generated from product and service supplied into the new residential construction sector of Australia and New Zealand which is impacted by several macro-economic factors.
  • As a supplier to the construction market, CSR is subject to a number of competitive forces including other domestic and international suppliers and new technologies which could replace existing building methods.

 

Digital and cybersecurity

  • Digital services are increasingly used by the construction sector. CSR’s digital development program is critical to achieving growth in its key markets.
  • CSR faces network and data risks due to cybersecurity breaches.

 

Employee and community engagement

  • An engaged and diverse workforce is critical to CSR’s long-term success – to help develop new ideas and build a workforce more representative of its society.
  • This includes managing its ageing workforce, transferring technical skills and sales relationships as well as promoting trade apprenticeships across the building sector.
  • CSR recognises that it plays an important role in the success and prosperity of local communities as an employer, operator of major manufacturing sites and developer of its legacy property assets

 

Energy and climate change

  • CSR’s manufacturing operations use significant amounts of energy including electricity and gas.
  • These energy costs are increasing, particularly for Tomago aluminium which impacts its cost competitiveness compared to global smelters.
  • The transition to a low carbon economy and mitigating the potential impacts of climate change as well as government regulations and planning may impact the availability and nature of supply, as well as how the Company manage its land assets and business processes.

 

Supply chain and product compliance

  • CSR relies on an extensive supply chain to manufacture and distribute its products and services.
  • This supply chain can be impacted by natural, political or technological disruptions which the company reviews to develop alternative supply options and minimise the risk of potential supply issues.

 

Workplace health and safe

  • CSR has a stated long term objective of achieving zero harm to CSR people across all operations.

 

Product liability

  • Previous involvement in asbestos in Australia and exporting asbestos to the United States.
  • CSR ceased asbestos mining in 1966 and divested remaining interests in 1977.

 

Credit risk

Nature of the risk

Credit risk is the risk of financial loss to the CSR group if a customer or counterparty to a financial instrument fails to meet its contractual obligations, and arises principally from the CSR group's receivables from customers. The carrying amount of financial assets represents the maximum credit exposure.

    

Liquidity risk

Nature of the risk

Liquidity risk is the risk that the CSR group has insufficient funds to meet its financial obligations when they fall due.

 

Market risk

 

Nature of commodity price risk – aluminium

The CSR group has exposure to aluminium commodity prices which arises from sales contracts that commit the CSR group to supply aluminium in future years. Prices for product supplied under these contracts are a function of the US dollar market price at the time of delivery.

 

Other commodity price risks

 

Other commodity price risks include:

Oil: the CSR group has exposure to oil commodity prices through an oil price linked gas purchasing contract. The A$ gas purchase price is partially a function of the prevailing US$ oil price and A$/US$ exchange rate. The CSR group has a policy of hedging the oil price component of the price of gas purchased to reduce the volatility of its energy costs.

Electricity: the CSR group has exposure to the National Electricity Market spot electricity price through an electricity supply agreement. The CSR group has a policy of hedging this spot price exposure to reduce the volatility of its energy costs.   

 

Interest rate risk management

At the reporting date, CSR group’s interest rate exposure is limited to the net debt balance of $14.3 million (2017: $11.4 million). The carrying amount of the net debt balance is the same as the fair value. The maturity profile for the cash balance of $13.7 million is less than 1 year and the maturity profile for the borrowings balance of $28.0 million is one to three years. The average interest rate on debt for the year was 2.4% (2017: 2.4%) and the average interest rate on cash balances for the year was 0.44% (2017: 0.44%). At 31 March 2018, if interest rates had increased/decreased by one percentage point per annum from the year-end rates with all other variables held constant, the post-tax profit for the year would have been $0.2 million lower/higher (2017: $0.1 million lower/higher), mainly as a result of higher/lower interest expense on debt balances.

 

Foreign exchange risk

The CSR group’s major foreign currency exposure relates to its US dollar aluminium sales revenue and payments for raw materials and capital equipment.

References

  1. ^ Annual Report 2018, P.61
    https://www.listcorp.com/asx/csr/csr/news/csr-limited-annual-report-to-shareholders-1891042.html
  2. ^ Annual Report 2018, P. 08, 10, 13, 16
    https://www.listcorp.com/asx/csr/csr/news/csr-limited-annual-report-to-shareholders-1891042.html
  3. ^ Annual Report 2018, P.07
    https://www.listcorp.com/asx/csr/csr/news/csr-limited-annual-report-to-shareholders-1891042.html
  4. ^ http://www.ibisworld.com.au/industry/default.aspx?indid=214
    http://www.ibisworld.com.au/industry/default.aspx?indid=216
    http://www.ibisworld.com.au/industry/default.aspx?indid=219
    http://www.ibisworld.com.au/industry/default.aspx?indid=208
    http://www.ibisworld.com.au/industry/default.aspx?indid=206
  5. ^ http://www.hoovers.com/company-information/cs/competition.csr_limited.083a28ca320d1748.html
  6. ^ http://www.fundinguniverse.com/company-histories/csr-limited-history/
    http://www.csr.com.au/investor-relations-and-news/csr-news-releases/2000/boral-and-csr-initiate-ecommerce-joint-venture
    https://docs.google.com/document/d/16_a76kzziynoHuQrVi6VYVv7q4xdaHBF-uhDagGBUHA/edit  http://www.csr.com.au/investor-relations-and-news/csr-news-releases/2001/rinker-acquires-five-quarries-from-cemex
    http://www.csr.com.au/investor-relations-and-news/csr-news-releases/2001/csr-america-acquires-florida-concrete-business
    http://www.csr.com.au/investor-relations-and-news/csr-news-releases/2002/csr-joins-hanson--queensland-cement-to-form-australias-largest-cement-group
    http://www.csr.com.au/investor-relations-and-news/csr-news-releases/2002/rinker-acquisition-of-kiewit-materials-company-successfully-completed
    http://www.csr.com.au/investor-relations-and-news/csr-news-releases/2003/csr-welcomes-accc-approval-of-merger-to-form-australias-largest-cement-group
    http://www.csr.com.au/investor-relations-and-news/csr-news-releases/2004/csr-increasing-stake-in-sugar-refining-joint-ventures
    http://www.csr.com.au/investor-relations-and-news/csr-news-releases/2005/csr-announces-acquisition-of-two-businesses-which-expand-the-csr-building-products-portfolio
    http://www.csr.com.au/investor-relations-and-news/csr-news-releases
    http://www.csr.com.au/investor-relations-and-news/csr-news-releases/2010/bright-food--conditional-offer-to-acquire-sucrogen
    http://www.csr.com.au/investor-relations-and-news/csr-news-releases/2014/accc-statement-re-csr-and-boral-australian-east-coast-brick-operations
    http://www.csr.com.au/investor-relations-and-news/csr-news-releases/2015/csr-and-boral-announce-formation-of-their-australian-east-coast-brick-joint-venture
    http://www.csr.com.au/investor-relations-and-news/csr-news-releases/2016/csr-announces-on-market-share-buy-back
    http://www.csr.com.au/investor-relations-and-news/csr-news-releases/2017/$3-million-research-grant-lifts-australian-innovation
    https://www.listcorp.com/asx/csr/csr/news/csr-limited-sale-of-monier-roofing-rosehill-site-1575471.html
  7. ^ http://www.csr.com.au/investor-relations-and-news/corporate-governance/csr-board-and-management
  8. ^ Annual Report 2018, P.61
    https://www.listcorp.com/asx/csr/csr/news/csr-limited-annual-report-to-shareholders-1891042.html
  9. ^ Annual Report 2018, P. 28-29, 76-78
    https://www.listcorp.com/asx/csr/csr/news/csr-limited-annual-report-to-shareholders-1891042.html