Crikey’s resident sweet tooth looks at CSR’s latest profit and wonders…
Should Australian taxpayers be giving any assistance to CSR Ltd to help
the highly profitable company overcome the low profitability of its CSR

It’s a question we asked a month or so ago when the Federal Government
revealed its $444 million assistance package for sugar, with millers
like CSR getting a share of the biggest part of the subsidies, the
so-called Sustainability Grants which total $146 million and will be
paid in two tranches this June and in 2005.

The question cames to mind again with the release of the CSR
profit for the year to March which showed a poorly-performing sugar
division nudged overall pre-tax earnings 4.7 per cent lower to $262 million.

The sugar division, which mills around 40 per cent of the country’s raw
sugar, earned a pre-tax profit of $37.8 million, down from just over $70
million because of low world prices and the drought.Raw sugar milling
earned $15 million in profit, down admittedly on the previous year, but
still a profit in a very tough market.

Small earnings, not losses, positive earnings. And the overall
profitability of the company wasn’t bad, in fact it was good enough for
the company to reveal more plans to effectively invest more in itself
with yet another buyback offer to shareholders.Return on funds overall
was 20.1%, good by any standard.

In 2003 the company announced plans for a buy back of up to 5% per cent
of the listed shares, and while this has not been completed, the board
has announced another buyback for another 5% of the listed shares in the
coming year.

Obviously, this is a company that is not hurting, nor in need for new
money if it can engage in an extensive capital management programme.
Shareholders will have no right to bleat about an underperforming sugar
division while the company can spend capital on a buyback.

It’s to be hoped that whatever money CSR gets in from the Sustainability
Grant won’t effectively underwrite the buyback, but will be used to
further improve the efficiency of its milling and refined sugar operations.

The sugar division also includes the company’s refining business, which
is not affected by the problems in world markets. In fact government
levies to pay for the various assistance packages are more of a problem
for companies like CSR and its consumers, large and small.

CSR said its sugar refining business saw earnings fall 28 per cent to
$12 million because of lower demand from the food and beverage
industries and because of restructuring costs.

An interesting comment. Clearly the big consumers of sugar are looking
for lower cost alternatives to sugar for sweetening agents. That could
include the high fructose corn syrups, which have taken huge amounts of
business away from natural sugar in America in the past 20 years because
the absurdly high US levels of protection and price supports for rich
planter politicians, which have pushed sugar prices there well above
world levels.

Besides these types of sweeteners, some big local consumers are clearly
sourcing cheaper natural sugar from overseas, further lowering the
demand for CSR’s products.

In Australia it could very well be the Howard Government’s system of
imposing levies on sugar to repay its various assistance packages, which
hurts consumers of all sizes. That’s cutting CSR’s refined sugar
profits.Big consumers, like Coca Cola Amatil, Cadbury, Pepsi and the
like can buy cheaper from overseas, leaving the poor small mug consumer
to pay the higher retail prices, along with the smaller industrial
consumers. Nice one John boy!
So should taxpayer money be going to a company like CSR to help mitigate
the pain of this government decision?

The release from CSR made no mention of how much it would be getting
from the Sustainability Grant, but a fairly broad estimate says the
payments over the next two years could effectively match earnings from
sugar milling on a before tax basis. That could be around $30 to $40

Which is a lot of money to go to a company that is in all honesty a good
manager (making a profit from milling sugar in this sort of market and
drought would have been tough). Why should being a good, efficient
producer be rewarded with some corporate welfare?

But it’s just not CSR that the question relates to. Last month Crikey
told readers that in the greatest of ironies, a beneficiary of the
Sustainability Grants would be Bundaberg Sugar, owned by one of Europe’s
big sugar groups, Finasucre of Belgium.

Why should any money from an Australian Government assistance package
find its way into the balance sheet of one of the direct beneficiaries
of the rort called the Common Agricultural policy that is protected at
all costs by the European Union, which includes Belgium. The system of
production caps, import bars and price supports, like America’s, helps
corrupt world trade in sugar and other agricultural commodities.

Why should Australian taxpayers and consumers being supporting a rort
like that?