However, there remain a few opportunities. The first major opportunity is the growth in China. One of the true growth markets in the sugar world, China is increasing in affluence and increasing its consumption of sugar-laden Western foods. The Chinese market increased by two-thirds in just six years, from 2000 to 2006, and still lags Western sugar consumption levels. Another opportunity, albeit farther out in terms of time frame, is the U.S. market. To enter this market will involve the Australian government breaking down the trade barriers that U.S. sugar producers have erected. There are more threats. The first major threat is the growth of India and other producers. India is poised to become the world's largest sugar producer, and will have a significant impact on prices worldwide. Another key threat is the decline in the domestic market. This will create capacity issues for CSR, and increase the intensity of competition. Another key threat is that of high fructose corn syrup, a major sugar competitor in the United States that is now making inroads into the Australian market. Analysis of Strengths and Weaknesses value chain analysis breaks down where the firm adds value in its operations. The first stage of the chain is the inbound logistics. CSR adds value during this stage in two ways. First, it has a degree of control over its pricing, due to supply contracts with growers. Also, its size gives it efficiencies in transporting sugar to its mills. Operations is a key link in the value chain for CSR. This includes the first step, which is milling the sugar into various sugar products, and secondary and tertiary steps as well. This includes the distillation of sugar into ethanol and the use of the ethanol to produce other end products. At each of these three steps, CSR sends product to the market. From there, more value is added during outbound logistics due to transportation efficiencies, and well-established distribution channels that bring CSR products to grocery stores and food service wholesalers. There is further value added in the marketing stage, on account of CSR's strong market position and brand recognition. There is little value added during the service stage.

CSR has several key strengths. As one of the oldest Australian companies, they have strong brand recognition amongst both retail and institutional end consumers. Their vertical integration gives them unique abilities to control costs. It also allows them to leverage competencies in one area to expand their presence in other areas. They have economies of scale that allow them to keep variable costs lower than those of their competitors. Moreover, they have non-sugar diversification that helps to insulate them against the cyclicality of the global sugar market.

The main generic building block that CSR uses as a source of competitive advantage is superior efficiency, a result of its economies of scale, geographic concentration and decades of experience in the sugar business. This competitive advantage is sustainable. There are high barriers to entry, such as access to raw materials, to the Australian sugar market. The Queensland producers have a slight geographic competitive advantage in their transportation and production efficiencies which, combined with CSR's size, make the company's competitive advantages relatively sustainable (for an industry based around a largely undifferentiated product). CSR's advantages are imitable by other global competitors, but it will not be easy.

CSR's functional strategy is to improve efficiency and control costs. Its business-level strategy is to leverage its dominant market position to maintain profitability in the domestic market, but they have a relatively passive approach to expansion in the global market. The corporate level strategy is undetermined, as the company is mulling over the possibility of breaking up their conglomerate. Until they decide if they are going to pursue this or not, there is little corporate-level strategy to evaluate. The industry is in a life cycle that is either in maturity or decline, although the global market shows some growth. CSR's efficiency and cost control strategy fits with the stage of the life cycle, as gains cannot be made with market growth. Their lack of action at the business level in terms of both building domestic market share through acquisition or in terms of expanding into overseas markets like China, is incongruous with the stage of the industry life cycle. They should be building economies of scale in order to increase volumes and reduce variable costs. Their lack of corporate-level strategy is also incongruous but not unexpected, given the lack of benefits accruing from their conglomerate structure...

With few similarities to one another, this becomes a distraction for senior management, who cannot give each business line the attention it deserves. Moreover, the component parts of the CSR conglomerate do not offer any synergies that would normally make such a structure worthwhile. Another weakness is that CSR is still subject to global sugar prices. Although their supply contracts hedge against this, those contracts also lock in prices and that can mean that CSR pays more than the spot price for its sugar, putting it at a competitive disadvantage. The company believes that their contracts and location close to sugar fields helps defray this weakness, but profits have been affected in recent years by fluctuations in sugar price, and as late as 2000 they considered exiting the sugar business altogether. Another weakness is the high capital cost structure of CSR, given the mills, distilleries and other production facilities, and continuous investment in refining technology. This high fixed cost structure demands that CSR focus on volume sales, a potentially difficult proposition in a declining market.
Financial Performance

Over the past five years, CSR has held their gross margin in a range. The past two years, however, were the lowest at 17.02% in 2007 and 16.62% in 2008. The highest margin over the period was 18.59% in 2006. Return on assets was strongest in 2007 at 10.01%, but weakest in 2008 at 6.55%. The past year also saw the weakest return on equity in the past five years for CSR at 13.02%. Two years ago, CSR recorded a high ROE of 25.57%.

The company's liquidity has been similarly challenged in the past couple of years, deteriorating from a high current ratio of 1.71 in 2005 to just 0.91 last year, the only in the past five below 1. CSR has also increased its leverage significantly over the past few years. In 2005, the debt-to-equity ratio was 0.941, but last year this had increased to 1.576.

None of CSR's main competitors in the domestic sugar market are publicly traded. Finascure is a wholly-owned subsidiary of a Belgian sugar multinational; MacKay is a co-operative and Manildra is family-owned. Given the unique circumstances of the sugar business (vertical integration, global commodity-based pricing, maturity, low differentiation) there is no reasonable comparable industry against which to evaluate CSR's sugar business.

Based on the financial analysis above, CSR is faced with declining financial performance, a result of challenges in the global sugar market. An analysis of the company's financials shows that the sugar business is responsible for the bulk of the firm's financial fluctuations. The company has faced in the past year declines in key profitability, leverage and liquidity measures. This indicates a weakening financial position, which combined with the industry's maturity and susceptibility to global commodity prices means that to some extent they are not meeting their strategic goals. They are no containing costs sufficiently to maintain profitability, and their lack of a plan to grow their business by exploiting new market or improving economies of scale has resulted in this decline in their financial performance in recent years.

Overall Conclusions

Sugar industry maturity and increased competition from substitute products means that the Australian sugar industry is in decline. This has resulted in challenges for the industry leader, CSR. Recent years have seen a weakening of CSR's financial position and financial performance. The increase in leverage of late is a poor choice, since that leverage was not used to increase market share either through acquisition or entry into new, growing markets such as China.

The lack of dynamism in CSR's sugar business has meant that the conglomerate has placed more emphasis on its other activities, but the company has recognized that this situation is a detriment to them in the long run, and is considering breaking up the conglomerate as a result. In the meantime, they have little discernable strategy, or vision, for how to defend their share of a declining market. They need economies of scale to thrive in these tough industry conditions, yet are not moving to build that share.

CSR has many strengths, but they are not taking advantage of those to the extent that they should be. A gap analysis would show management the difference between where they could be and where they are. Right now they are treading water, but they have…