CSR Limited is one of the most renowned Australian industrial company which mainly deals in Aluminium and other building materials which are used for building purposes. CSR is considered to be a giant company with diversified range of products for building construction, aluminium, sugar industry and considered to be the olderst company in Australia. CSR is a publicly traded company mainly traded on Australian Securities Exchange (ASE). With a total employee around ten thousand in 2009, the company earned a total of Australian Dollars 134 Millions reaping out of total sales revenue of Australian Dollars 3500 Million (About CSR).
CSR as a company was started in 1855 in Sydney named as Colonial Sugar Refining Company. It was the first time in Australian history that refining of imported raw sugar was done. With the passage of time, the company expanded its operations and manufacturing with mills established in Queensland and other parts of the country. This gave a stance to the country to stand up to produce sugar locally. It was not until 1923 when CSR signed an agreement with the government of Queensland for refining the state’s sugar and its entire production. With this the company gained monopolistic conditions in the market and it was the time when company reaped out maximum profits and built a strong base for what CSR today looks like (About CSR).
Right now, CSR is considered to be one of the biggest and leading company providing products for building. As a matter of fact CSR has around twenty five percent shares in Tomago Aluminium smelter. The company has also been engaged in developing numerous former industrial sites for the purpose of future land sales. In the investment arena, CSR is one of the most favourable companies in Australia. It is well known for its investment pay back and sound cash flows which have never created problems for any of its stakeholders (Products). CSR manufactures a wide range of building products.As a specialised company in providing Building material products, company has following products in market:
- Gyprock™ plasterboard,
- Cemintel™ fibre cement,
- PGH™ bricks,
- Monier™ rooftiles,
- Bradford™ insulation and
- Viridian™ glass
CSR enjoys around thirty five major operational plants in Australia and most of its operation in New Zealand and Asia for Building products and relevant supplies of the material. Each building product is a unique brand created at CSR which are highly recognized and trusted across the globe with a large base of residential and non-residential construction. In December 2010, CSR decided to sell its sugar and renewable subsidiaries; Sucrogen to Wilmar International. The company today enjoys a healthy corporate image where the community shareholders and the whole CSR family which are the employees expect even more from the company with every passing second. Company has firm belief to share its resources for the betterment of the society and environment in general as Corporate Social Responsibility. The company right now is financially stable and one of the favorite choices of the industrial buyers as well as the consumer customers for building products in Australia (Products).
According to the corporate website of CSR, following are the businesses company has been engaged in since last many years:
CSR produces more than fifty percent of Australia’s raw sugar and also have around 80 percent interest in refining sugar companies in Australia and New Zealand. The functional division also works and markets solvents and ethanol with special emphasis of chemicals and electricity production from molasses and other by products achieved from sugar manufacturing. The sugar division has been divested to Wilmer International Limited which is a Singaporean agro based company.
The company has got the ownership interest in the Tomago aluminium smelter. The company produces aluminum.
Building Products produces glasswool and rockwool insulation, plasterboard, fibre cement, clay bricks and pavers, concrete and terracotta roof tiles, lightweight concrete products and glass under the following brands:
Thermal and acoustic insulation and air handling products for use in residential, commercial and industrial applications. Bradford products are sold in Australia, New Zealand and Asia.
Rokcore fire proof composite panel systems and Alutri aluminium composite panels for external facades, fire wall, internal ceiling and roofing applications in Australia, New Zealand and Asia.
Cemintel fibre cement building boards for residential and commercial applications.
Gypsum-based plasterboard for wall and ceiling linings; applications include protection from water, fire and sound.
Suspended ceilings for commercial developments.
Natural and hybrid ventilation systems for domestic and commercial projects.
Hebel products included aerated lightweight concrete blocks; reinforced wall, floor and roof panels; reinforced lintel beams, mortars and finishes, and tools and fixing accessories. Hebel products are manufactured in Australia and Malaysia.
||Pricing of shares allocated under the
Dividend Reinvestment Plan priced at
|| $2.9439 per share
|| $2.4768 per share
|| $1.3317 per share
||$1.5307 per share
The first thing the company has introduced in this financial year is “Dividend Reinvestment Plan”. CSR with the new Dividend Reinvestment Plan (DPR) is to be operational for the final dividend payable on 5th
July, 2011. The plan would enable the investors a new horizon to increase their shares in CSR by injecting back a portion of their entire earned dividend in the purchase of more share; rather than getting the dividend in their hands (Annual Report 2010).
Key Financial picture at CSR; Financial Year 2011
- Market capitalization accounted for around Australian $ 2.5 billion
- Total Revenue = A$3.49 billion
- EBIT to 31 March 09 – A$320.1 Million
- CSR owns 70% of Gove Aluminum Finance (GAF), which holds a 36.05% interest in the Tomago Aluminum smelter joint venture
- CSR has a well maintained position for leverage, which creates expected cyclical upswing in the Australian/New Zealand construction markets
- Diversified portfolio of leading brands which are enjoying the position of construction market leader brands with extensive know hoe of the industrial and consumer market
- CSR has enhanced, low cost manufacturing capability from recent capital reinvestment program
- CSR also has well maintained position to capitalize on growth in up-and-coming building innovations which are more sustainable for medium and high density living patterns. This has ensured even more positive cash flows into the system of CSR
- Leading portfolio of energy efficient building products have enabled company to reap out additional profits from the investments; Net Income amounts to be around Australian Dollars 129.5 Millions.
- Consistent cash flow generation and attractive dividend stream
- Strategic investment in globally competitive aluminum smelter
- Capital reinvestment programme largely complete, starting from 5th June, 2011 which will enable CSR to get additional capital from the existing base of investors and stakeholders in the company.
- Medium term property development pipeline provides additional cash flows
- Financial position allows flexibility to pursue growth options
Liquidity Ratios (Annual Report 2010)
- Current Ratio = Current Assets/ Current Liabilities = 762.3/430.6 = 1.78
Current Ratio of CSR presents company’s financial picture to be very good. Current Ratio of any company more than 1.0 is considered to be healthy one which shows that there is $ 1 current asset available to support $ 1 current liability. In the case of CSR, this ratio shows for every $ 1 current liability, there is $ 1.74 to support it .
- Quick Ratio = Current Assets – Inventories / Current Liabilities = 762.3-17.6/430.6 = 1.73
Quick ratio defines a company’s short term liquidity position. Inventories are hard assets which are not liquid in nature at times. For the inventories at CSR which are mostly hard assets for building material etc, it is a novel idea to take them out of the Current assets. The quick ratio if more than 1.0 suggests that total liquid assets (excluding inventories) equal to $ 1.0 to support $ 1.0 liabilities. In the case of CSR, the ratio is once again more than 1.0, which reflects the sound liquidity of the company’s operations.
- Net Working Capital = (Current Assets – Current Liabilities) = 762.3 – 430.6 = A $ 331.7 Million
For a manufacturing and selling company like CSR, Net working capital must always be in positive a figure which ensures that current assets are more than current liabilities. In the case of CSR, Australian Dollars 331.7 Million are in access in the current asset account if compared to current liabilities in the financial year 2011. This again shows a strong financial muscle of the company in terms of liquidity.
- Net Working Capital to Sales Ratio = (Current Assets – Current Liabilities)/ Sales = (762.3-430.6)/1913.6 = 0.17
This is the working capital per dollar of sales. This also reflects that how the company has been using its working capital with respect to sales. In the case of CSR, the said ratio shows a sign of financial stability.
- Net Profit Margin = Net Income/ Sales = 129.5 / 1,913.6 = 0.0676 = 6.76%
Net profit margin is one of the key ratios used for profitability of the company. In the case of CSR, the net profit margin ratio comes out to me 6.76 % which shows out of all the expenses and other overheads, the company stands out to have 6.76 % profits from the sales done. For a giant company like CSR, this is a very small profitability base, which suggests that there is an immediate need for looking into the expenses and other over heads which are to be cut down for enhanced profitability.
Inventory Turnover = Cost of Goods Sold / Sales = 1323.0/1913.6 = 0.69
Asset Turnover ratio = Sales / Total Assets = 1913.6/2216 = 0.8635 = 86.35 %
This shows the amount of sales that has been generated from every dollar’s worst of asset. Asset turnover calculates firm's efficiency when using all of its assets in generating sales. The closest the ratio to 100 %, the better it is for the company. Since the Asset turnover ratio comes out to be 86.35%, this is also goods in terms of the industry benchmark which is lower than this figure.
Fixed Asset Turnover = Sales / Fixed Assets = 1913.6/1134.5 = 1.686 = 168.6 %
- Total Debt to Asset Ratio = Debt / Total Asset = 1.4/2216 = 0.063 %
- Total debt to equity ratio = Debt / Stockholder’s equity = 1.4 / 1281.3 = 0.1092 %
- Equity Multiplier = Total Assets / Stockholder’s equity = 2216 / 1281.3 = 1.729
- Times- Interest – coverage ratio = Earnings before Interest and Income Taxes / Interest = 111.9 / 47.6 = 2.35
The company has excellent financial leverage ratios. As the Financial statements presents, CSR has a very low leverage profile which is also exhibited by Debt to Asset Ratio which is just 0.063 %, Debt to stockholder’s equity ratio, which is also 0.1092 %. Equity multiplier and times Interest Coverage ratio has also been suggesting low leverage ratio of CSR in FY 2011.
1- Return on Asset = Net Income / Total Assets = 129.5/2216 = 0.05843 = 5.843 %
Return on Asset is an indicator for calculating the profitability of a company if compared to its total assets. ROA gives an idea as to how efficient management for utilizing its assets to generate earnings. The higher the ROA number, the better, because the company is earning more money on less investment. ROA is just around 6 % which is on the lower side which suggest that the management is not vigilant in utilizing its assets to generate earnings.
2 - Return on Equity= Net Income / Stockholder’s equity = 129.5/1281.3 = 0.10106 = 10.106 %
Return on Equity (ROE) is the amount from the net income returned in comparison to the shareholders equity. Return on equity gives picture to a company’s profitability by enlightening their profitability with the capital of shareholders which they have invested. ROE for a company like CSR is on the lower side, as FY 2011 shows it to be 10.10%, for which steps are to be insured to enhance it.
Number of days of inventory (Inventory turnover ratio) = Inventory / (Cost of goods sold x 365) = 17.6 / 1323 x 365 =
- The company has good financial strength. Especially the liquidity portion of the financial analysis shows very positive financial signs for CSRs growth in the future.
- The company has a leading and a very established position with a lot of goodwill involved over the years. This has always payed back to the company.
- Motivated workforce due to owning the company’s 51% shares has revolutionized the whole concept of work at CSR.
- The company has a very low Return on Asset and Return on Equity which shows managerial flaws in financial decision of the company.
- Operational in efficiencies are also the part of the game which also caused severe problems for the company in the past.
- The company seems to be working not up to their full manufacturing and managerial capacity.
- Ceiling Insulation rebate scheme could be a very viable option for the company to grow
- Economic friendly products can be very much in the favour of company’s financial stability.
- More innovative and technological products for building and construction purposes.
- There is a lot of competitive pressure from many of the existing construction product manufacturers in the local as well as foreign markets.
- There is a threat of potential new entrant with the introduction of something latent in demand.
- Governmental rules and regulations can cause severe threats to the company.
Values at CSR Australia are very strong. Values are defined as:
“CSR’s values reflect the company’s commitment to sustainability. They have been developed to ensure CSR acts as a responsible corporate citizen for the benefit of all of stakeholders.
CSR’s values are:
- Safety, Health and Environment;
- Working Together;
- Innovation; and
The CSR values are communicated across the company through a variety of formal and informal channels. CSR is committed to reinforcing the values through annual performance reviews where employees are assessed against specific outcomes based on CSR’s values.”
CSR started its operations as a key and monopolistic position for refining sugar in many parts of Australia. As a matter of fact, Building products company CSR not only decided to sale its sugar business; Sucrogen to Wilmar International which is a Singaporean agri based company. The selling was done at a total of $ 1.834 Billion. It was the biggest decision in 155 years of company’s businesses since its emergence and also for the building businesses which was present in the market for some time. The company also decided to return back around $ 800 million from the sale of Sucrogen to the shareholders with a special dividend of 52.7 cents per share. The company also cold its Asian business to Rockwool group for a $130 Million.
Financial Analysis shows that:
The figures suggest that the company with the presence of Sucrogen and other energy plants, the debt lumber on the company was too hefty. From FY 2006 to FY 2010, the company shows extreme debt which is definitely unbearable by the management and financial means of the company. As mentioned above, Sucrogen was sold out and it is no more a part of CSR. As a matter of fact, with its sale, the debt portfolio of the company gets extremely low. It is just has been under the debt of AUD 1.4 Million, which is negligible if compared to the size of the business.
Leverage ratios of the company are also been showing a good financial muscle of the company after divesting Sucrogen. The company has excellent financial leverage ratios in the leverage ratio analysis. As the Financial statements presents, CSR has a very low leverage profile which is also exhibited by Debt to Asset Ratio which is just 0.063 %, Debt to stockholder’s equity ratio, which is also 0.1092 %. Equity multiplier and times Interest Coverage ratio has also been suggesting low leverage ratio of CSR in FY 2011.
According to CSR, their main stakeholders are their employees. Not only stakeholders but true asset to the company; as declared by the higher management many times. AT CSR, the employees share plan boosts the employees to possess a stake in company. This has served as dual purpose. Firstly, it upheld the financial situation of many of the employees. Secondly, in this way the company aligned its business objective with those of the employees; as more input for the work with dedication by the employees will not benefit the company but will best serve as profit and increased dividend in the end to them too. As a matter of fact, financial year 2010 was not a good managerial year for the company and it forced the financial people of the company not to offer any employee share plan in the attempt of massive cost cuttings and reducing further overhead expenses of the company. More than 3200 employees were already key players in the employee share plan in the previous financial year; 2009, around 60 % of those were eligible. We also see that around 51 % of CSR employees currently own CSR shares.
Other than that, company gives weighage to all other stakeholders including Australian Government, values customer, and every intermediary that comes in the supply chain process of the company.
Ray Horsburgh, a former chief executive of the Smorgon Steel Group who now sits on several boards, including that of building materials company CSR, warned of the dangers of rising electricity costs (Pimagazine Asia, 2010).
“The risk was that, eventually, locally produced aluminium, steel and other metals ‘just won't be competitive‘with ingots or slab imported from China. It’s very important in any smelting industry in Australia, steel, any of the metals that are smelted, power becomes a competitive factor," Mr Horsburgh said (Pimagazine Asia, 2010).
CSR is one of the oldest and biggest businesses in Australia. With a history of more than 155 years, the vast business starts from sugar and refining till the building products for which company becomes hegemony in Australia. As a matter of fact, the company has shifted its focus from sugar and relevant businesses towards building material products. Sugar Businesses including Sucrogen became ‘problem child’ for the company with excessive debt lumber on its shoulders. In 2010, the company finally sold out the business unity to Wilmer International of Singapore. Right after the divesting decision, the financial and leverage situation of the company got better with a minimum percentage of debt bearing liabilities to the total assets of the company.
About CSR. (n.d.). Retrieved May 16, 2011, from CSR Australia: http://www.csr.com.au/facts/Pages/default.aspx
Annual Report 2010. (n.d.). Retrieved May 15, 2011, from CSR Australia: http://www.csr.com.au/investorcentre/Documents/files/report20100331/csr_ar10_annual_report.pdf
Capital Return Payment. (n.d.). Retrieved May 17, 2011, from CSR Australia: http://www.csr.com.au/investorcentre/Pages/CapitalReturnPayment.aspx
Investors Centre. (n.d.). Investors Centre
. Retrieved May 16, 2011, from CSR Australia: http://www.csr.com.au/investorcentre/Pages/default.aspx
News Release. (n.d.). Retrieved May 15, 2011, from CSR Australia: http://www.csr.com.au/news/Pages/news_releases.aspx
Pimagazine Asia. (2010, November 05). Export coal: our power gift to Asia
. Retrieved May 15, 2011, from Pimagazine Asia: http://www.pimagazine-asia.com/index.php?page=shownews&news=2905
Products. (n.d.). Retrieved May 15, 2011, from CSR Australia: http://www.panelsystems.com.au/
Sustainability. (n.d.). Retrieved May 17, 2011, from CSR Australia: http://www.csr.com.au/Sustainability2010/index.html