Monthly Archives:January 2019

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 write-down of the glass business Viridian (formerly Pilkington). The first $280 million hit was in 2009; the second of $250 million was made in 2010.

Another $121 million hit was made a year later. In three years the value of this business has declined to about $400 million in book value.

On Monday CSR informed the market that the glass business was still bleeding red ink and there would be yet another attempt to devalue these assets on its books.

Chief executive Rob Sindel has decided to bite the bullet, close a couple of factories, retrench about 150 workers and attempt to come out the other end with a business that makes money.

There will be an upfront cost of $34 million, which will be taken in the current year but the company believes it will deliver annual improvements to earnings of $27 million.

Sindel doesn’t really have a choice. All companies need to take a hard look at what returns can be made from all of their assets. The corporate watchdog, the Australian Securities and Investments Commission, is policing this more diligently than ever.

Those running other manufacturing companies in Australia will feel Sindel’s pain.

Since 2007 the Australian dollar has appreciated by 40 per cent and there has been a 30 per cent drop in the construction market. On top of this, CSR’s energy and labour costs have increased by between 25 per cent and 30 per cent. The buoyant dollar has been particularly detrimental to the glass business, whose higher end value-added products market has been eaten away by competition from Asian suppliers.

It’s the part of CSR’s portfolio most akin to the steel market, where Australia’s biggest domestic producer, BlueScope, has been similarly affected.

As such Viridian will never reach the earnings expectations the CSR board made when it was acquired. It is in structural decline.

Whether the remainder of the stable of building and construction materials can compensate for the decline in glass manufacturing depends on the timing and the shape of a cyclical recovery.

The sharemarket is clearly predicting some kind of cyclical improvement in the construction market. This is being supported by comments from the company acknowledging there has been a modest improvement in the housing construction market.

But it is coming off a very low base. CSR’s building products businesses are expected to earn $75 million to $78 million in the year to March 2013 – about $10 million less than last year.

For investors the question that needs to be addressed is whether some of the building products that CSR makes are also in structural decline. For example, Sindel points to societal changes such as the fact that young adults are staying at home longer rather than moving out and investing in housing.

And there is also the fact that multi-residential buildings like apartments are becoming more popular. This means less bricks and glass, but bodes well for the products used in this type of construction such as hebel blocks and plasterboard.

Even the emergence of digital has resulted in collateral damage for the construction industry – less glass is needed to showcase products and is being replaced with glassless warehouses on slabs of concrete.

The response has to be to refine the product portfolio and cut costs from those whose earnings are under pressure.

CSR is one of those case studies highlighting the slow demise of the Australian manufacturing industry – the type that Liberal politicians latch on to to push their arguments that a carbon tax is an impost on an industry that is already suffering.

That may be true, but many of the reasons CSR is a smaller company today than it was 20 years ago are of its own making.

And while it has undertaken a slow transition to become a smaller shadow of itself, it has not been all bad news for shareholders.

The decision to buy US building materials assets in the 1980s and ’90s was, in hindsight, a very good one. The decision to demerge these assets, which were ultimately sold, was a great one.

The decision to sell out of the sugar business is one that will be judged in the future. Investment markets like clean single-sector companies rather than conglomerates. They also like selling assets for decent prices, which is what CSR received when it offloaded sugar.

Sindel says not all companies need to be big to be successful. True, but most successful companies get bigger rather than smaller.

The original release of this article first appeared on the website of Hangzhou Night Net.

Amid growing speculation that Prime Minister Julia Gillard will have to abdicate or face a beheading at the federal election, talk is turning to the country’s infrastructure as suggestions of pork barrelling and policy backflips emerge.

It is a sad indictment on a government that returned to power in 2007 promising to rebuild the nation and lift productivity using infrastructure as the centrepiece.

To this end it gave the country its first infrastructure minister and set up an independent advisory body, Infrastructure Australia (IA). IA was designed to eliminate pork barrelling by creating a priority list of infrastructure projects based on a cost-benefit analysis and advising on major policy reforms – including how to make public private partnerships (PPPs) work and rational tolling.

Fast forward to today and outside of the NBN – which has its own set of controversies – the government’s grand plan for infrastructure is in tatters and sound policy and decision-making have been hijacked by real politics.

To put it into context, $3.6 billion was outlaid in the last federal budget to support state infrastructure, compared with $7.69 billion in the previous year. This is a drop in the ocean compared with what is required to bridge the country’s $770 billion public infrastructure backlog.

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.

As the 2013 federal election looms and pressure mounts on the Labor Party to preserve as many seats as it can, backflips on infrastructure policy are becoming more blatant – and desperate. These include Treasurer Wayne Swan’s threats to Queensland based on the state’s blueprint for better healthcare, the WestConnex project and the ATO draft determination.

The Queensland government’s blueprint was an attempt to cut costs and create efficiencies in an unsustainable health sector by opening it up to new financing models, privatisations, outsourcing and exposing its health services to contestability.

The Treasurer’s reaction was almost hysterical as he warned the reforms posed a ”threat to Medicare and the values behind it – particularly quality healthcare through free public hospitals”. He also said the government would do what it could to stop the reforms.

This was seen as an attempt to placate the Health Services Union and the public sector, given there is no evidence the blueprint would have any impact on Medicare or public hospitals as the only difference is there would be a different contracted employer.

Then there was the Prime Minister’s $1 billion pledge during last week’s stint at Rooty Hill to ease congestion in Sydney’s western suburbs by building the WestConnex (M4 East, M5 East and inner-west bypass).

Funding came on the proviso that tolling would be banned on existing sections of the M4 and M5 motorways. Under the proposal, Gillard has also said that the scope of the project would be extended, to provide commuters travelling on the M4 with a direct link to the city and freight travelling on the M5 with a direct link to Port Botany.

Given it will cost up to $15 billion to complete, such a condition effectively rules out private sector interest, which makes the announcement look like a cynical attempt to claw back votes.

Ruling out tolls also puts it in direct contrast to advice put forward by IA – the body it set up – in its last two reports to COAG.

The brutal reality is there are two ways to fund public infrastructure: taxes or tolls.

But examples of cynical announcements don’t stop there. Reports emerged on Monday that during Gillard’s trip last week 19 proposed western Sydney infrastructure projects that had applied for Regional Development Australia Fund grants had made it to the fourth round. Only three projects from other regional areas managed to get through to the next stage.

There are also questions over the release of the ATO draft tax determination, unveiled in December without industry consultation. In summary, debt deductions for PPPs will be reduced, making them less viable, changing a project’s economics and ultimately making the capital program more expensive.

Infrastructure Partnerships Australia said in a submission: ”The draft taxation determination is impacting both existing and future projects, by creating uncertainty for project arrangers, investors and the various state governments. It has also created uncertainty among lenders to such projects. We ask that, as a matter of priority, the draft taxation determination be resolved quickly to remove this uncertainty. We are willing to assist in this process.” Indeed.

The original release of this article first appeared on the website of Hangzhou Night Net.

A potential candidate at the Cronulla board elections has savaged the directors’ handling of the crisis, strongly criticising chairman David Irvine.

John Dunphy, the former head of Shimano in Australia, is considering contesting the elections. Candidates have until March 18 to nominate, with members going to the polls in mid-April.

The multimillionaire businessman believes the directors are trying to protect their own interests in standing down coach Shane Flanagan and sacking four of his staffers. While he is yet to decide definitively if he will contest the ballot, Dunphy is adamant the board has mismanaged the situation.

”The consensus is the board has not stood up for the players and they have buckled over,” Dunphy said. ”Are they saying Shane Flanagan is half guilty or a quarter guilty? Do you put them off or sack them? The physiotherapist – what did he do? Bugger all.

”This is an effort on the board’s part to exonerate themselves. The bottom line is … that is their responsibility. What we have here is Irvine saying they knew nothing.”

Attempts to contact Irvine for comment were unsuccessful. Dunphy said he was close to Flanagan and captain Paul Gallen and, given they had protested their innocence, they should be taken at their word. ”If they say they have done nothing wrong, what can they actually admit to?” he said. ”This tactic of saying, ‘We’ll give you a six-month sentence and another year on the contract and pay you all the time’, that is unacceptable to the people of the Shire. That’s unacceptable to natural justice, it’s unacceptable to people who, in their own words, have done nothing wrong.”

Dunphy insisted he had not been sounded out about standing for the board, although it’s understood some of the Shire’s most prominent businesspeople and identities have discussed forming a rebel ticket.

”Of course I would consider getting involved,” said Dunphy, who will retire as chairman of Shimano in June. ”From now on level heads are the ones which make the call, not done on self-interest or emotive terms.”

The original release of this article first appeared on the website of Hangzhou Night Net.

Collingwood ruckman Darren Jolly has received support from current and former players for his spirited column calling for the AFL to rethink its push to further change the rules of the game.

In his Fairfax column, Jolly argued for the league to abandon its plan to cap the interchange next year and called for an overhaul of the Laws of the Game Committee.

He said he was frustrated at persistent rule changes and wanted those governing the rules to take better counsel from those who play the modern game.

”One of the best articles I’ve read in a very long time,” Richmond recruit Troy Chaplin wrote in a message re-tweeted by his teammate Dustin Martin.

Former players Toby Thurstans and Steve Baker both expressed their support for Jolly’s column.

Thurstans, who played for Port Adelaide, said Jolly was his ”new favourite player”.

Baker also offered on social media: ”Darren Jolly’s article in todays Age. Essential reading. Un-sanitised opinion. KB’s acolytes will be reaching for the Valium. Great whack.”

Baker’s tweet alluded to the fact Jolly said the Laws of the Game Committee needed to be overhauled to include more recent players. He pointed out that while he respected the playing record of the committee’s chairman, Kevin Bartlett, the Tiger great finished playing two years before Jolly was born.

Bartlett colourfully defended his position on his morning radio program.

”The world’s greatest gynaecologist is a male, and he’s never had a baby,” he said.

Many of the coaches have spoken of their dismay at the AFL’s intention to cap interchanges at 80, prompting Andrew Demetriou to speak out gruffly to reiterate the AFL’s position that a cap on the interchange was coming in next season, the only question to be resolved was what number of interchanges the cap would be.

The original release of this article first appeared on the website of Hangzhou Night Net.

There are single role players. There are dual role players. And some rare types who are considered ”triple threats”. They are the ones who can be used basically anywhere, in any position, on the ground.

St Kilda and Sam Gilbert are hoping that he can become a triple-threat player this year. Gilbert has been used in the midfield this pre-season, including spells on the ball, starting in the centre square.

For a player who has been used as a flanker, predominantly in defence but also as a forward, it was an evolutionary move hoped to give the Saints an additional big body around the contests.

Gilbert’s tools for the game are clear – he has height, exceptional speed and a farm dog’s ability to run all day without tiring. It has meant he has been used as a running half-back, who has pinch-hit on tall forwards as well as tracking the crumbers.

His kicking is not in the elite category but his other assets are, which is why coach Scott Watters has proposed the move to the midfield.

”One of the things that has come out as a result of the limited rotations in the pre-season is being forced to experiment with players to be more flexible,” Watters said of the experiment of using Gilbert on the ball.

”So Sam will be used at the defensive end, the front end and in the midfield for us this year. It’s fantastic for us and shows his versatility and strengths as a player.

”From an endurance and speed point of view he has all the attributes to play anywhere on the ground – he has elite speed and endurance and has good height, can mark well overhead. So no doubt at times throughout this year he will be used in those roles.

”As we look forward and the way the game is going [with capped interchanges] and the demands of the game, endurance running and that versatility is important. There’s a lot of players who can play two roles, if you like, or dual roles, but [Gilbert] falls into the category where he is – or could be – a triple threat.”

Luke Hodge is probably the best modern example of the triple threat, while others such as Bulldog Ryan Griffen, Tiger Brett Deledio and Adelaide’s Patrick Dangerfield are triple threats who are all, like a good cricket all-rounder, equally strong wherever they play on the ground.

There are other players such as Geelong’s Paul Chapman, Adelaide’s Scott Thompson, Magpie Nick Maxwell and Carlton’s Bryce Gibbs who have all played three roles but have largely only been pinch-hitters outside their normal roles.

Brendon Goddard was a triple-threat player but in more recent years at St Kilda he mainly played as a sweeper behind the ball.

For now, Gilbert is likely to fit within that pinch-hitter role and remain predominantly a rebounding defender and switch up forward. But his advantages in the midfield – his rangy size combined with his pace – mean he is defensively very dangerous.

Gilbert said he had learnt from the experience of wingman Leigh Montagna in trying to adjust.

”Leigh Montagna has helped me a bit, especially about moving in there from different points of the ground. He has been really good,” Gilbert said.

”It’s a different type of running in the midfield; it’s more explosive running, which is something I enjoy, but I am still getting used to the body work and the physical game on the ball.

”I don’t think I will be starting there straight away but I would hope during the year I get my chances through there.

”I think I will still mainly be down back but I do like to have that flexibility to be moved around.”

Gilbert had a shoulder operation at the end of last year that restricted him before Christmas but he has been in full training in the new year.

Gilbert’s switch to on-baller is part of Watters’ tinkering with the Saints’ structure coming into the coach’s second year. Watters has shifted Rhys Stanley behind the ball to help solve the need for a tall defender, a move that will continue when Stanley returns from injury after hyperextending his knee in the NAB Cup. He could yet be fit for round one.

Small forward Arryn Sippos has also been pushed up the ground to a wing as the Saints look to better exploit his exceptional kicking skills.

The original release of this article first appeared on the website of Hangzhou Night Net.