CSR EBIT down 16%: 46% lift in Building Products offset by 69% drop in Sugar earnings

CSR EBIT for the six months to 30 September 2007 of $158.2 million down 16% -earnings weighted to second half of the year

Building Products EBIT up 46% following restructuring of the Bricks and Roofing operations and acquisition of the Australasian business of Pilkington in June2007

As foreshadowed, raw sugar prices pulled down sugar earnings by 69%

Pilkington– early performance in line with expectations, integration on track. DMS Glass acquisition complete

Lower EBIT, higher interest costs and effective tax rate lowered net profit before significant items by 34% to $72.3 million. Including significant items, net profit was down 38% to $67.5 million

The interim dividend to be paid on 17 December 2007 will be maintained at 6 cents a share, fully franked

Net cash from operating activities up 7.5% to $134.2 million

Share purchase plan completed on 2 November 2007 raising $112 million. Dividend reinvestment plan reactivated for interim dividend payment

A detailed review of CSR’s structure has concluded that a restructuring of asset sat this point in the cycle would not result in any significant valuation uplift

Financial results summary

Half year ended 30 September
[$ million unless stated]




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30 September 2007

30 September 2006

Gearing – net debt / net debt + equity (1)



(1) Excludes fair value of hedges fromequity

Earningsbefore interest and tax (EBIT) by segment

Half year ended 30 September 
[$ million unless stated]




Building Products
















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“For the half year the significant increase in CSR Building Products’ earnings was not enough to offset the nearly 70 per cent drop from Sugar,” CSR managing director Jerry Maycock said today.

“Growth in Building Products was assisted by the acquisition of Pilkington and the restructuring of Bricks and Roofing divisions. Despite the ongoing downturn in the east coast residential housing market, earnings from our existing businesses was up 18 per cent on a 2 per cent lift in revenue.”

“The acquisition of DMS Glass in October adds further synergies to the Pilkington acquisition. The integration of both companies, although in the early stages,is progressing extremely well. The combined impact is expected to be approximately earnings per share neutral this year and positive thereafter,excluding one-off costs.”

“As highlighted earlier this year, Sugar milling earnings were impacted by a $71per tonne drop in raw sugar prices compared to the prior half year, the higherA$, increased costs due to wet weather and the sugar mills renewal program. A three year program is underway in the raw sugar mills to upgrade critical equipment, improve cost position and increase sugar recovery. The Refined Sugar business performed strongly with earnings up 21% while our renewable fuel ethanol and electricity businesses continue to grow.”

“InAluminium, we have continued hedging at attractive levels to lock-in future earnings, while Property’s results are expected to return to a more sustainable level in the range of $35 million to $40 million per annum, depending on the outcome of transactions currently in negotiation,” Mr Maycock said.

Group outlook

“For the full year, despite an expected 70 to 75% lift in Building Products earnings, CSR’s full year EBIT is expected to be around 5% lower due to the downturn in Sugar and a lower result from Property. This guidance is in line with the September2007 trading update.

“Net profit will also be impacted by increased interest costs due to the recent acquisitions and a higher average tax rate,” Mr Maycock said.

Strategy review

A detailed review of CSR’s structure over the last six months has concluded that a restructuring of the portfolio at this point in the cycle would not result in any significant valuation uplift.

Mr Maycock said the key factors influencing this conclusion include:

raw sugar prices and new Australian housing construction being at cyclical low points, with the timing and rate of upturns still not apparent

CSR’s earnings yet to benefit from almost $900 million of acquisitions over the last six months and recent and pending investment in growth projects, and

the improved medium term outlook for markets in Sugar and Building Products,based on fundamentals and enhanced by opportunities in energy efficiency and renewable energy.

“A significant capital expenditure program is underway with over $400 million budgeted for investment in the next two to three years to coincide with an expected upturn in Sugar and Building Products.”

“We are improving business performance and investing in growth. I am confident that these steps will position the company to take advantage of improved market conditions anticipated in the future,” Mr Maycock said.

“After a thorough analysis the Board has concluded it is not in the best interests of shareholders to restructure CSR’s portfolio now. Nevertheless we do believe there will be opportunities in future to create value from structural change. We are intent on growing all our businesses and ensuring they have the appropriate scale and structure to take advantage of such opportunities.”

Financial review

CSR issued 49 million new shares in an institutional equity placement which raised 
$150 million (before costs) in September 2007. A share purchase plan (SPP) which was announced concurrently with the equity placement closed on 2 November 2007. The SPP, originally targeted to raise $75 million, was over subscribedraising a total $112 million and will result in the issuance of an additional36.6 million shares.

As previously announced, the company’s dividend reinvestment plan (DRP) will be reinstated for the interim dividend. The last date for receipt of the election notice for participation in the DRP is the dividend record date of 19November. For the interim dividend, a discount of 2.5% will apply for shares allocated under the DRP. The applicable discount (if any) for future dividends may be changed at the discretion of the board. The company has entered into arrangements to underwrite the offer of shares under the DRP for the interim dividend.

Following the acquisition of Pilkington, net debt has increased to $1.1 billion from $448.6 million in March 2007. Gearing (measured as net debt/net debt plus equity) has increased to 42.4% from 25.3%.

CSR continues to deliver strong cash flow with net cash from operating activities (excluding derivative margin calls and settlements of insurance litigation) of $134.2 million, up 7.5% from $124.8million, largely due to working capital improvements.

Review of results by segment

Building Products

CSR returns continue to be impacted by the ongoing downturn in the residential housing market in New South Wales. However earnings have improved, particularly following completion of the restructuring of the Bricks and Roofing operations.

EBIT of$66.3 million which includes $12.7 million of earnings for three months from Pilkington, was up from the previous year’s$45.5 million. Work continues to ensure that CSR is positioned to maximise returns when the residential building market begins to turn around in response to the pressure from underlying demand for new dwellings.

Performance Systems’ revenue (including Bradford™insulation, Hebel™ lightweight concrete products, Edmonds™ ventilation systems and Bradcore™ panels) increased by 1% to 
$142.2 million (excluding Pilkington) as sluggish market conditions in the residential market reduced volumes and wet weather delayed some projects into the second half of the year while the previous year also included a large one-off contract in Asia. Excluding this contract, revenue was up 9%.

On 29June 2007, CSR completed the acquisition of Pilkington, Australasia’s leading manufacturer and value added distributor of architectural glass. For the period from 29 June 2007 to 30September 2007, Pilkington contributed revenue of $104.8 million and EBIT of$12.7 million. The early performance of Pilkington is in line with expectations, despite the soft housing market.

The Pilkington business is ideally positioned to capitalise on the increasing use of architectural glass in residential and commercial buildings and an increasing focus on energy efficiency. It also complements CSR’s existing portfolio of energy efficient building products. CSR has further enhanced its position in the glass market with the acquisition of DMS Glass which was completed on 8 October 2007. DMS is a leading Australian downstream value-added processor and distributor of flat glass. Integration of Pilkington and DMS is underway and although the integration of Pilkington and DMS has just commenced, forecast synergies are on track. As part of the acquisition, Pilkington will be re-branded under the CSR master brand over the next few months.

On 19June 2007, CSR announced that it will invest $50 million to construct a newBradford™ glasswool insulation manufacturing plant north of Brisbane in Pine Rivers, Queensland. Bradford is the largest insulation producer in the Asia Pacific region and this new factory will increase its total glasswool production capacity in Australia by over 30%.

Heightened community awareness of climate change issues has increased demand for products such as insulation and coated glass as they provide an immediate and cost effective solution to improve the energy efficiency of existing buildings.

Gyprock™ plasterboard and Cemintel™Fibre Cementrevenue was up 7% to $213.7 million due to the contribution of Fricker Ceiling Systems acquired in December 2006 and growth in Western Australian and Queensland, offsetting the impact of the ongoing slowdown in the housing market in New South Wales.

A $140million program is underway during the next two years to upgrade the Melbourne Gyprock™ plasterboard factory to a larger capacity, environmentally sustainable plant which will be the lowest cost in the industry. The reconfigured CSRG yprock™ network will result in the industry’s lowest through-the-cycle delivered cost.

PGH™ bricks and Monier™ and Wunderlich™roofing revenue of $159.0million is down 3%. The successful completion of the restructuring of the Bricks and Roofing operations has led to a significant increase in EBIT. In the last six months, prices have increased in most markets although volumes are down, in line with market conditions. Following the closure of the Strathpine plant announced in May 2007, the transfer of paving operations to Cooroy is underway, with production scheduled to begin in early 2008.

Outlook: The residential construction market is forecast to remain relatively flat in the eastern states, although the Queensland market is showing some signs of recovery, which should continue for the rest of this year. The strength of the Western Australia market appears to be slowing and the timing and level of recovery for the New SouthWales market remains uncertain. Commercial demand remains strong in all states.

Excluding earnings from the Pilkington and DMS acquisition, Building Products EBIT is expected to be 15-20% higher than last year with sales growth in the commercial sector and further cost reductions. Including the acquisitions,EBIT will be in the range of 70-75% higher than the previous year.


Trading revenue of $642.0 million was down from $803.2 million while EBIT of $22.4 million was down from $71.6 million largely due to the significant drop in raw sugar price to A$300 per tonne from A$371 per tonne for the comparable six months last year.

Raw Sugar: Unusually heavy rain in June and July delayed the start of the crushing season by 3-4 weeks in CSR’s largest milling region in the Burdekin south of Townsville, while the Herbert region and Plane Creek mill were also delayed by2-3 weeks. This was latest start to the milling season on record. As a result, milling will need to be extended into December, which is the start of the traditional rainy period in North Queensland. This increases the risk of further rain interruptions, lower sugar recovery and the possibility that some sugarcane is left uncut at the end of the year.

The first year of a three year program has been completed in the mills to upgrade critical equipment, improve cost position and increase sugar recovery. This year operating capital expenditure is expected to be approximately 170% of depreciation to ensure that CSR maintains its

competitive position in the global raw sugar market.

The renewal program also includes upgrading the mills’ IT systems, improving maintenance processes and adding to the mills teams’ skills and capabilities through recruitment and training. Labour costs in particular are higher, dueal so to the shortage of skilled workers in the North Queensland region. This will increase fixed costs by at least$10 million this year with approximately half of these costs incurred in the first half of the year including higher levels of depreciation.

RefinedSugar’s earnings were up due to increased sales volume sand improved trading margins. The $56 million upgrade of the Yarraville refinery in Melbourne is underway to improve efficiency and ensure that the refinery meets customer expectations as Australia’s preferred refined sugar supplier.

Ethanol’s returns were lower in the first half of the year due to the wet weather delays which have impacted molasses availability and fertiliser sales revenues. Given reasonable weather conditions in the second half of the year, these sales should be recovered.

Outlook: The Refined Sugar,Ethanol and renewable electricity businesses are performing well and are expected to deliver results ahead of last year. Sugar milling will be impacted by the fall in raw sugar prices and higher A$. Despite the hedging completed in previous years, the realised raw sugar price is likely to be marginally below

A$300 per tonne compared to A$354per tonne last year.

Assuming reasonable weather conditions for the remainder of the milling season and the prevailing raw sugar prices and exchange rates continue,the overall Sugar EBIT is expected to be between 40-45% below last year.


Gove Aluminium Finance Limited (70% CSR) trading revenue increased 2% to $282.5 million on marginally higher prices and a small reduction in sales. GAF’s sales volume from the Tomago aluminium smelter was 93,137 tonnes, 811 tonnes (0.9%) lower than the corresponding period last year.

The average realised aluminium price was A$3,033a tonne, including settlement of hedging losses, compared with A$2,949 in the same period last year. The average world aluminium price increased to US$2,702, a rise of US$98 over last year’s comparable price.

EBIT was $65.9 million, $1.7 million lower than the corresponding period last year. EBIT margin decreased to 23.3%, compared to 24.4%. This was mainly due to higher production costs and lower sales volumes. In addition, for technical reasons the Tomago smelter is experiencing a transient period of increased pot maintenance slowing production by about2%. This is expected to continue during the second half of the year and probably the first quarter of the next financial year, with production expected to return to previous levels thereafter.

The world aluminium price softened in the latter part of the last six months due to concern that the higher cost of credit would slow growth,particularly in developed economies. However growth in demand for aluminium continues to be strong and US$ prices should continue to be favourable, but will remain sensitive to the supply and demand balance for aluminium inChina.

GAF has maintained high hedging levels in the near term and for the second half of the financial year around 85% of net aluminium exposure is hedged at A$3,005 per tonne.

Outlook: Factors that impacted the first six months including higher production costs and slightly lower volumes as well as the softening aluminium price and higher A$ will also impact the next six months. As a result, Aluminium’s EBIT is expected to be slightly below last year.


EBIT of$7.6 million was down from $9.7 million. The half year result comprises earnings from the Enviroguard (CSR 50%) landfill waste management business which is performing well and additional sales of residential land at Fern tree Gully in Melbourne.

Outlook: This year, Property’s results are expected to return to a more sustainable level in the range of $35 to $40 million per annum, depending on the outcome of transactions currently in negotiation.