CSR axes dividend as annual profit tumbles 26pc

CSR has withheld its final dividend amid volatility, after a weak housing market contributed to a 26pc slump in annual net profit.

The weak housing market has dented CSR.

Construction supplier CSR expects the COVID-19 shutdown and economic slump will flow through to weakening demand for Australian housing in the next six months, with its final dividend axed as a precautionary measure to protect its balance sheet.

CSR holds one of the highest exposures among building product operators to new residential housing and said it was cautious about the outlook for the sector.

“There are a number of economic factors that will dampen peoples’ appetite in the housing sector including a higher unemployment rate and low net migration rate,” CSR chief executive Julie Coates told The Australian.

The shutdown of display homes and worsening financial sentiment has forced CSR to withhold earnings guidance for the 2021 financial year due to uncertainty from the pandemic.

“We were actually forecasting that the downturn would continue for the remainder of 2020 or our year end March 2021. Obviously with COVID-19 restrictions there have been a number of impacts and we think that will impact our sector in the second half of this year.”

A range of earnings scenarios have been modelled as it sought to assess a worse case for its business from shutdowns.

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“At one stage we were faced with the potential reality of needing to plan for a scenario of an indefinite lockdown which is zero production and zero revenue and how we would approach that. And we’ve modelled everything in between,” chief financial officer David Fallu said.

With Australia’s construction sector working through the pandemic, CSR customers scrambled to grab “essential service” products, particularly in the lead-up to Easter.

“It looks like effectively toilet paper and plasterboard are the two things people bought during the lockdown,” Mr Fallu noted.

CSR opted not to pay a final dividend due to economic volatility with annual net profit tumbling by a quarter due to the weak residential housing market.

A $100m share buyback was paused, with $69m so far purchased, while it secured an extra $200m debt facility to boost its liquidity position with $95m in cash.

Annual net profit fell 26 per cent to $134m, from $181m, with building products earnings falling 17 per cent to $170m.

Building products revenue fell 3 per cent in the first six weeks of this financial year on the same period a year ago.

The company owns brands including Hebel, Monier roofing, Gyprock and Cemintel.

CSR — which owns a stake in the Tomago aluminium smelter in NSW — said its aluminium unit recorded a 63 per cent increase in earnings to $59m with a lower Australian dollar and coal costs.

Its Tomago partner, Rio Tinto, had warned its Australian smelters including Tomago are on thin ice due to high energy costs, which was reiterated by the CSR boss.

“For Tomago to continue to operate we must have a globally competitive energy price,” Ms Coates said. “We’re working with our partners, energy participants, government and regulators to deliver a better solution for Tomago.”

Citi on Monday slashed its 2021 and 2022 net profit forecasts on CSR by 45 per cent to $87m, and 39 per cent to $103m respectively but said the 2020 result showed resilience in some of its business lines.

“The company seems well prepared to manage a downturn and will look for supply chain and footprint cost reductions to support earnings,” Citi analyst Craig Woolford said.

CSR shares rose 10 per cent to $3.72.