Strategic and Financial Management in CSR Limited - Example

STRATEGIC MANAGEMENT Strategic Management Customer Name: Lecturer Name: Date: Executive Summary The report presents a strategic position of CSR limited, considering various measurement metrics. The report considers the financial performance of the company, over the four-year period from 2008 to 2011. The company’s performance suggests that the financial performance was on a downward trend. This justified the sale of Sucrogen, as attested by the positive performances reported in the year 2011 results. Various analytical metrics are used, which suggests that the external opportunity, which exists, can propel the company to greater heights. The company also has internal strengths, which can be utilized to gain strategic competitive advantage. The Industry and Competition Analysis, suggests that the company is in a viable industry. Company analysis shows that with the sale of Sucrogen, the financial analysis suggests better performance. The results of Macro-environmental Analysis (Economic, Social-Cultural, Political, Technological, Geographic, agrees with the view that the future performance of the company, is bound to substantially improve, in the positive direction. Introduction CSR was founded in Sydney in 1855 as the Colonial Sugar Refining Company. Currently the company is the leading building products provider in Australia and New Zealand; in addition, the company trades in Asia. The company has enjoyed more than a century in the business environment and has broadened its portfolio to embrace a wide range of leading products and services. Whereas the company began in the sugar industry, Wilmar International purchased its sugar and renewable energy company - Sucrogen - in December, 2010. The company up to then dealt with production of renewable electricity and ethanol, milling of raw sugar, manufacturing, and distribution of refined sugar products. In addition, the company operated in diverse business sections including Property, building products and Aluminium. The Company, which publicly trades in the Australian Stock Exchange, has expanded shareholding with principally Australian fund managers and retail owners. CSR limited with joint ventures and its subsidiaries operates across China, Australia, New Zealand, Malaysia, Singapore and Thailand.  Assumptions In the research, several assumptions were made. The company, stopped its sugar production unit in the year 2010 and it sold off part of the business. The previous year’s financial statistics have the sugar production as part of the company’s financial constructs. Furthermore, the company has not released the detailed financial findings for the year 2011, the strategic management shall be based in the findings of the year 2011 and 2011. As per the date of writing the strategic management plan, there are no comprehensive financial findings on the company, independent of the sugar production. There may be substantial impacts in the company having sold Sucrogen the sugar and renewable energy company. Utilizing the case study, it is presumed that the responses offered by the respondents as true and a correct reflection of the correct performance of the company. Situational Analysis There are several internal and external factors which have an impact on the advancement of CSR towards attaining its strategic objectives. A major undertaking by the company in the last one year is the company’s sale of Sucrogen to Wilmar International for a total payment of $A1.843 billion. There are several external factors that influences the performances of the company, these are the opportunities and threats identified. The internal factors are identifies as the strengths and weaknesses. Situation analysis is wide and it includes SWOT analysis, industry and competition analysis, company analysis, stakeholder analysis, portfolio analysis and Macro-environmental Analysis (Economic, Social-Cultural, Political, Technological, Geographic, Demographic) SWOT Analysis The SWOT (strengths, weaknesses, opportunities, and threats) analysis is imperative towards understanding the current position, and the future strategic position of the company. The analysis is an integral component of the strategic planning process of the CSR company. An important construct of the SWOT analysis is to ascertain the strengths of the company , and how the company can exploit the strengths to effectively compete in the market. By realizing its strengths, CSR is able to derive a better understanding of the market performance of its products. The SWOT analysis presented in a tabular format offers an informed glimpse on CSR’s current market position, the company’s core competences and probable improvements that can be exploited to progress the company’s strategic realization of the objectives. The strengths and weakness are the current factors influencing the company, while the opportunities and threats are the factors which are likely to influence the company’s position, in future. Strengths Weaknesses At the corporate level, the CSR has several strengths. The management of the company is dynamic and committed towards realization of the company’s strategic objectives. The current strengths of the company is a long history of offering quality products. The company has been in existence for more than 155 years, hence has attained a company’s mature brand name. The company has attained recognition with the customers, hence can rely on the move ahead. The company is also strong CSR also as strong, effective and efficient strategic marketing techniques. This is a strength since the marketing techniques such as strong advertising and promotional campaign enhanced and facilitated by the use of internet. The company utilizes focused and customized marketing strategies, where they focus the marketing of a specific product to the client who is most likely to be profitable in the short term and long term. The customized marketing has ensured that the company’s products , their features and characteristics can be viewed over the internet making it possible for a greater percentage of individuals to be reached at. The Similarity and uniformity of quality across geographical locations makes the company to experience a greater market share. At the business level, the presence of the company’s operation and subsidiaries in several countries insures the company against fluctuations of foreign exchange earnings in one country. Their global and local presence is also strength in that it serves many countries and therefore can has a wide client base. The utilization of Computer Aided Manufacturing is also strength. The company is able to save on costs, produce higher quality products and mass-produce more items in a relatively smaller timeframe. The company has a good Corporate Social Responsibility, which enhances the corporate image of the company. The company has a weakness in terms of perception in financial strength. The company generated negative reputation from some quarters, when it sold Sucrogen to Wilmar international. Considering that sugar production was the core business of the company for several years. At the corporate level, the company may not be able to source external finances in case of expansion, due to the perception that it is susceptible to failure. Moreover, the company may have demoralized workforce, due to the nature of the working environment. The company has been sued several times in the past, concerning the working conditions of their staff, presently The mining and milling of blue asbestos at Wittenoom is the most destructive industrial disaster in Australia. The staffs working in the company’s high risk areas are likely to be de-motivated. Opportunities Threats The opportunities has constructs that are most likely to impact in the company’s future performance. The high demand of the company’s services and products in other countries, is an opportunity for the company to expand its market base. Advances in technology is also an opportunity for CSR. To advance its operations, the company can utilize creativity and innovation within the product development and strategic management. Increased housing demands are also an opportunity. The current developments in constructions and housing real estate developments in Australia and New Zealand, due to increased housing demands driven by social multi-residential are an opportunity for the company to increase their sales. The increased demand for other products related to what is offered by the company is also an opportunity. To meet the increased demand CSR company can diversify and increase its product range, to the already existing list of heat insulation materials for buildings and construction plasterboard, Metals & Mining, glass and aluminium products, Aggregates, Concrete & Cement and construction. The growth of the competitors is a threat. CSR competitors such as Boral, Brickworks, Fletcher Building Limited and James Hardie have grown tremendously in the past to a level they can match CSR’s performance. Furthermore, the company faces a threat of reduced financial performance occasioned by the aggressive marketing strategies by the competitors’. These strategies include substantial price cuts, and product quality enhancement and advancement. From the aforementioned analysis, factors internal to the organization are strengths and weaknesses. CSR has several strengths, which can be translated to strategic competitive advantages. CSR has external factors influencing it, in terms of opportunities and threats. The company has a window of opportunities, which when utilized can be of benefit to the company. However, there are threats, which include advancement of the marketing strategies of the competitors, which may be an reduce the company’s sales. Industry and competition analysis The viability of the industry CSR operates in namely, Aggregates Concrete & Cement sector, the metals and mining industry, construction industry, Aluminum Production, construction and construction materials shall be analyzed using porter 5 forces. Several elements of the porter 5 forces are examined such as supplier power, new market entrants, customer power, product and technology development and competitive rivalry. Concerning new market entrants, there are several barriers to entry such as time and cost of entry. Considering that time is an important element in any market in launching any product, launching building and construction materials is an expensive venture, which requires time to develop the machineries and source for a place with viable raw materials. This reduces the chances of new entrants. Product Differentiation and Cost Advantage. Building products are sensitive to quality attributes. The sector is dependent on the perception of the customers in terms of product attributes. In the building and construction industry, there are usually loyal customers who cannot move with new products in the market. Knowledge and Technology are the skills are intrinsic expertise that offers competitive, preventing the competitors from using the same ideas hence creating barriers to entry. In the industry, diverse knowledge/ experience in the construction industry and aluminium production, is a requirement. Furthermore, access to Distribution Channels is also a market barrier to new competitors, in the sector. Most companies operating in the sector have comprehensive and well established distribution channel in several countries in the world. Buyers are also an important force. There are several buyer related issues in the porter’s five forces model affecting the construction and building industry. Important issues include the switching costs. In the construction industry, and that glass and cement are the primary building materials with no alternative. Switching from the current core building materials is therefore unforeseeable unless another building material, with the possibility of new discoveries being minimum. The demand for the building and construction products is therefore assured. Number of customers and volume of sales also influences in the building and construction industry. Shelter is a basic need and the products offered by construction industry, are most unlikely to miss customers while the volume of sales in the industry is assured to increase, due to more persons investing in real estate and buildings. Generally, the potential customers for industry are all people in the populace; therefore the presence of several buyers means that the buyers cannot dictate the terms. The bargaining power of buyers is therefore limited. In the five porter’s five forces model, suppliers are also an important subject for analysis. The important analytical elements include the Number and Size of Suppliers. The building and construction industry requires raw materials and labor. Some of the raw materials is mined therefore the industry is safe from the powerful suppliers who can squeeze industry profitability to great extend. Some of the items used in the aluminium production are unique with few product suppliers with limited products substitutes. In the metals and mining sector, few specialized companies dominate the provision of mining tools. There are limited options for against the building and construction industry companies to choose from; therefore, the industry’s production line is dependent upon such suppliers. The ability to substitute is also a factor. In cases where the suppliers’ products have high switching costs, the availability of substitutions does not necessarily mean that the industry can switch to the substitutes, since the next product in the assembly line depends upon it. In the building industry, the presence of substitutes may not immensely influence the industry’s options considering that changing one part of dependant products means altering the entire production line. This is unfeasible alternative. The presence of substitutes is also a factor. The Substitutes performance plays an important role in the success of every product. Building and construction industry’s products have limited substitutes, which perform better; therefore, buyers are limited from switching to other products. The Price band is also an issue, this is the threat that customers can opt for the alternative if there is reduction of the price of the alternative, or if there is an increase in price of the product. The company’s in the industry strategically manage their costing model, to ensure optimum price, balancing between the need for profit, and threat of customers switching away from the products. Buyer’s willingness is also a factor. Competing products with improving price/performance tradeoffs when considered against the current industry products, determines the willingness of the customers to purchase building industry products. Competitive rivalry is the fifth force in the porter’s analysis. Important considerations include the number and diversity of competitors. There are several competitors offering similar products, in the country. The present situation is therefore a very competitive environment with players such asCSR, Boral, Brickworks, Fletcher Building Limited and James Hardie who have strategic marketing techniques. Competition depends on the specific supplier’s quality and price. Exit Barriers, there are several barriers which limit a company operating in the building industry from exiting. Exiting the current products in the market, even if the product fails is a challenge for the in the industry since the products are capital intensive. The current industry of producing heat insulation materials for buildings and construction plasterboard, Metals & Mining, glass and aluminium products, Aggregates, Concrete & Cement and construction utilize expensive specialized equipment which company’s in the industry cannot change to product other products,. This makes exiting a challenge and an expensive affair. The building industry has a potential for growth considering the rising demand for housing. The sector is stable due to restrictive factors, which discourage new entrants such as capital intensively. The competition is high, due to several seasoned competitors operating, however exiting the industry is a challenge. Company analysis The construction industry has long been considered as a staple sector, however since the subprime mortgage crisis in the US triggered economic crisis, the sector has faced increased risk perception and reduced confidence. This has impacted on the entire performance of the company. Furthermore, the sale of sugar and renewable energy company - Sucrogen to Wilmar International in December 2010 has both been of positive and negative impacts to the company. From the financials perspective, imperative financial metric is the profit as a percentage. Other financial analyses in the company’s performance are the Price – Earnings Ratio which puts into consideration the Market Value per share and the Earnings per share. It is important to consider the Price – Earnings Ratio since it shows how the market values the CSR stock. Furthermore, an important analysis not affected by the CSR’s capital structure is the Enterprise Value/Earnings Before Interest, Taxes, Depreciation, Amortization. From the shareholders perspective, important measurements include the Dividend Yield percentage, which considers the annual dividends per share and the price per share, the dividend shield offers a view into the yield CSR pays out to its shareholders in terms of dividends. An analysis of the CSR Group shows that the company pays an annual dividend percentage of 5 %. The Net Profit is an informative benchmark, which provides the net profit after taxes to revenue according to Fontanills and Gentile, (2001). Other informative benchmarks important for the CSR Limited performances include the Earnings Before Interest and Taxes, Earnings Per Share and the Dividend Per Share, collectively the ratios are important towards deducing the financial position of the CSR limited. Furthermore, it is important to present the EV to EBITDA, which is a benchmark that shows the performance of CSR by highlighting the Enterprise Multiple. The Enterprise multiple is important considering that CSR limited operates in several countries and their operations span Australia, New Zealand, China, Malaysia, Singapore and Thailand. The metric is vital for international business comparison since it ignores the varying impacts of different countries' taxation policies. Furthermore, it situations of takeovers, Enterprise value is enhanced than market cap since it considers the debt expected to be assumed by the acquirer, this was the case with sale of Sucrogen. Other r metrics such as P/E tend to assume the debt expected to be assumed by the acquirer. It is therefore of paramount importance to consider the performance of the company, over a longer span of time, since this offers a more informed view for strategic decision making. In the results released in the 31st of March, 2011, the company has different presentation from the previous years, considering in December, 2010 the company sold Sucrogen, hence it was classified as discontinued operations. In the year, the company posted a net profit after tax after significant items of $503.4 million. The sales of Sucrogen is an important strategic movement to enhance profitability in the short term, in the year, the company’s reported net profit was majorly made of $497.1m realized through sales of Sucrogen and $45m from Asian insulation business. In the financial results posted at the year ending 31st March, 2011 from a shareholders perspective, the company declared a Final dividend of 5.3 cents per share, fully-franked. From the sale of Sucrogen and Asian Insulation businesses constitute the final dividend to be paid. The company has therefore maintained a strong financial position maintained. After sales of Sucrogen and excluding Asian insulation, the group realized thirteen percent increase in net profit after tax from continuing operations pre significant items up to $90.2m. in the same financial period, CSR limited realized a decrease of one percent to $308.0m of Earnings Before Interest, Taxes, Depreciation, Amortization EBITDA (pre significant items) from continuing operations. Furthermore, the company realized reduced earnings before interest and taxes (EBIT) of pre significant items to ) from continuing operations of $218.0m . The company has several Strategic Business Unit which had different performances in the year. The Building Products EBIT (ex insulation) increased by 28%, while the Building Products EBIT (including Viridian) increased in the year, in comparison to the previous year, by three percent to $107.4m. the Aluminium production EBIT was $111.9m, which represents a nine percent reduction from the previous year’s EBIT. The Property EBIT increased to $14.6m representing a 14% positive change. The positive results posted in the year 2011, are a positive in comparison of the company’s performance in the year 2011. It is therefore imperative to present the analysis of the company’s performance in the previous years. In the year 2010, CSR limited posted increased trading revenue to $ 3,754.9 Million, in the year, increase in a gross margin of $ 861.5 million was attributed to the increased cost of sales increased to $ 2,893.4, million. The company reported the Basic earnings per share–based on net profit (loss) attributable to shareholders of (8.2) cents, while the total assets reduced to $ 1,149.5 million. In the year, the Price-Earnings Ratio - P/E Ratio was 13.5; the enterprise value (EV) to earnings before interest and taxes (EBIT) was 6.0 %, while the EV to EBITDA was 6.3. The Return On Equity in the year was 10.3 %, the ROA being 6.6 % and the ROIC was 9.9%. With the Net profit margin of 4.6 %, the EPS was 6.7%, while the DPS 16.4%.The profit Operating profit increased to $316.1 million, hence posting a profit from ordinary activities before finance and income tax of $ 63.9, million. The (Loss) profit from ordinary activities before income tax reported was ($ 37.2 million) while the Net (loss) profit was ($ 75.3 million). The performance of the year, was not impressive, therefore necessitating the strategic sale of Sucrogen. The decline in the company’s financial performance was exhibited in the year 2009 financial performance. In the period, the CSR group financial results suggested overall financial reduction than in the previous year 2008. The company experienced a reduction of Gross margin to $ 813.8 million from $ 820.4. In the year, there was a Net profit before significant items attributable to shareholders of $134.0 Million. Furthermore, the Basic earnings per share based on net (loss) profit attributable to shareholders was (29.7) cents. The company owned assets valued at $4,188.4. The enterprise value EV to EBIT was 6.9 %, while the EV to EBITDA was 5.8, the Price-Earnings Ratio - P/E Ratio in the year was 16.8 %, the Earnings Per share percentage were -39.0 %, ROIC was 7.9 % . The Return On Equity in the year was 13 %, the ROA being 5.2 % and the Net profit margin of 3.8, while the Dividend per share was 47.9%. In the previous years, the company’s annual financial performance was relatively better. The financial analysis of 2008, showed that the group reported a net profit after significant items was $177.4 million, the Net profit after tax of $192.8 million before significant items and the reported Earnings per share were 20.9 cents, before significant items. The Earnings before interest and tax (EBIT) was $ 386.3 million while the Earnings before interest, tax, depreciation and amortization (EBITDA) was $ 536.5 million, while the company reported Return on shareholders’ funds (ROSF %) of 12.7. The company’s Net profit margin of 6 %, the Earnings Per share percentage were -24.4 %, while the Dividend per share was 0%, Price-Earnings Ratio - P/E Ratio which was 15.8, the percentage yield was 8.7 %. The Return On Equity in the year was 13 %, the ROA being 6.6 % and the ROIC was 9.6% while the EV to EBIT was 5.7 %, while the EV to EBITDA was 8.2. The performance of the year suggests that the financial position of the company then, was relatively strong in comparison to the year 2009 and 2010. The financial performance of the company suggests that the company’s position improved after selling Sucrogen, The company which was previously in economic crises, was able to pay the shareholders well in the year 2011. Macro-environmental Analysis Several Economic, Social-Cultural, Political, Technological, Geographic and Demographic trends are likely to impact on the company’s performance in the near future. The economic factors likely to influence the company are the economic growth in Australia and New Zealand is a positive score for the company. Moreover, the competition in the industry is likely to impact on the company’s performance. The company is also likely to be affected positively by the social-Cultural factors such as the rise of the living standards of the populace. This suggests a greater demand for houses, which translates to more market for the company’s products. The political stability of Australia, guarantees the company of prospective future. In addition, the government’s policy of housing fosters growth of company. CSR is also likely to be positively influenced by technological advancement. The advancement of computer-aided manufacturing and Computer Aided Engineering is a challenge and a blessing to the company. Most competitors have implemented computerized systems, which may threaten the company’s position in the near future. However, the company can fully computerize its operations to foster lean production and reduce costs of operation. CSR operates in a diverse demographic and geographic environment. The aluminium industry is exceptionally cyclical, amenable to prevailing economic conditions and dependant on the conditions at of other sectors. Statement of alternative options The challenge the company is facing is the threat posed by the competitors. The company has to consider alternative actions to effectively compete with Boral, Brickworks, Fletcher Building Limited and James Hardie that have grown tremendously in the past to a level they can match CSR’s performance. There are several alternative actions that the company can pursue to mitigate against the threat. This includes, pursuing aggressive marketing strategies. These strategies include substantial price cuts, and product quality enhancement and advancement. The company has relatively lagged behind in computerization. The company has to adopt several important technologies such as computer Aided Design, Computer aided Manufacturing, Computer aided Engineering, knowledge management systems and Enterprise Resource Planning systems, to enable the company save on costs. Furthermore, computerization shall enable the computer to optimally utilize its workforce. CSR can build on its strengths and exploit the opportunities such as increasing production capacity to meet the high demand of the company’s services and products in other countries. This also calls for expanding the market base to include other countries, not currently served. Furthermore, CSR can opt to diversify its production to include other building and construction products apart from what they are currently producing. Recommendations Considering the prevailing market situations, CSR limited was in a precarious condition that determined greatly the survivability of the organization. The other alternative courses of actions are least likely to give substantial positive impacts. The company therefore have to pursue the most viable alternative, which ensures the company achieves profitability and as well can effectively compete in order to realize the company’s strategic objectives, mission and vision. References Allen, S. (2008). The emergence of the relationship economy: The new order of things to come. Cupertino: Happy About press. Charles, Gibson. (2009). Financial Reporting and Analysis. London: Cengage Learning. Donna Jo Fuller. (2005). The Stock Market, How economics works.  Minneapolis: Lerner Publications. Fontanills, George and Gentile, Tom. 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