CSR to pay special dividend

Building products supplier CSR will pay a special interim dividend to shareholders despite lower aluminium prices.

The Tomago Aluminium site near Newcastle. Picture: Supplied

Building products supplier CSR remains cautious on the outlook for the housing sector as stimulus measures including JobKeeper ease off next year and remains hopeful the under-pressure Tomago aluminium smelter can strike a cheaper power deal with AGL Energy to ensure the facility remains profitable.

CSR declared a special dividend of 4c in addition to a regular payout of 8.5c, marking a steady performance from its mainstay building products division after axing its final dividend in May due to economic volatility as COVID-19 roiled demand.

The outlook “still remains uncertain and is dependent on a whole range of things as housing stimulus takes steps and more ­importantly JobKeeper and JobSeeker start to unwind,” CSR chief executive Julie Coates said.

“We plan to monitor pretty closely what that might mean for our business and manage it ­accordingly.”

The prospect of an interest rate cut on Tuesday stimulating housing growth was unlikely to have a major impact.

Net profit fell 15 per cent to $58.7m in the six months to the end of September and revenue declined 6 per cent to $1.08bn, although building products earnings edged up slightly to $96.3m, with the earnings before interest and tax margin up to 12.1 per cent, from 11.4 per cent.

Still, CSR said building products revenue is down 6 per cent during the first four weeks of its fiscal second half when compared with a year earlier.

CSR, which owns a stake in the Tomago aluminium smelter in NSW, said interim aluminium earnings fell 75 per cent to $6.2m as the aluminium price fell 8 per cent due to COVID-19 volatility.

Due to its large hedge position (designed to shield the company from an expensive electricity contract at Tomago), CSR expects annual earnings for the aluminium division of $14m-$23m.

The Australian revealed in September that Australia’s biggest aluminium smelter had reopened negotiations with AGL Energy to strike a cheaper electricity contract amid concern an existing deal set to run until 2028 and a tough market backdrop for the metal may ­cripple the future of the giant manufacturing site.

CSR said talks were continuing between Tomago — the ­nation’s largest power user, whose owners include CSR and Rio Tinto — and AGL.

“If it was easy it’d be done by now is the short answer,” CSR chief financial officer David Fallu said. “It’s a multi-party, multi-stakeholder environment most particularly between Tomago and its energy provider. But then also the services that Tomago provides for the stability of the ­national electricity network.”

Tomago has opened talks with the Australian Energy Market Operator to investigate different payment models to recognise the role it plays in the electricity grid, where it can power down to help the state avoid ­blackouts.

“We’ve seen an evolution in that space,” Mr Fallu said. “Tomago participates within the demand response plan and it’s probably the most effective participant in that, given the size of load that can be turned off and turned on with one phone call.

“The next evolution of that is ensuring how Tomago can play that role in return for an energy price that recognises the value that it plays in the network. But also is one that isn’t a contingent payment and is one that we’re able to actually forecast so that we can make long-term planning decisions within that business.”

The Tomago power contract, which started in 2017, was originally struck back in 2010 with Macquarie Generation when it was owned by the NSW government. AGL then inherited the existing electricity deal - the biggest power supply contract signed in NSW - after buying MacGen in 2014.

While NSW wholesale power prices have dived in the past year, the terms are understood to lock the smelter into a comparatively high-priced contract until its expiry in 2028.

CSR also forecast $55m in property earnings during the current half, mainly due to delivery of the first tranche of the Horsley Park Stage 2 project in NSW.

CSR rose 5.7 per cent to $4.66.