Results for the half year ended 30 September 2006

CSR Limited (CSR) today announced earnings before interest and tax (EBIT) of $188.8 million for the half year ended 30 September 2006, up 0.6% on the prior corresponding period. Higher world sugar prices and aluminium prices offset the impact of continuing weak residential construction in east coast markets, where NSW residential construction remains at a 20 year low.

Higher average debt levels following CSR’s on-market share buy-back, have lifted finance costs and reduced net profit after tax by 4.7% to $109.2 million.Based on the number of CSR shares on issue at the end of the period, earnings per share is 12.4 cents, compared to 12.6 centslast half year.

There were no significant items during the half year ended 30 September 2006.

Financial results summary

Half year ended 30 September [$ million unless stated]








Trading revenue




Earnings before interest, tax, depreciation and amortisation




Earnings before interest and tax – EBIT




Net profit (1)







Earnings per share (EPS) [cents] (2)




Earnings per share (EPS) [cents] (3)







Key measures




Return on shareholders’ funds (4)







As at 30 September





Gearing – net debt / net debt + equity (4)




(1) Therewere no significant items in the half year ended 30 September 2006 and 2005(2) Based on weighted averagenumber of shares (3) Based on the number of sharesat 30 September (4) Excludes fair value adjustmentsfor hedges from equity


“Weachieved a steady result as better world sugar prices helped to offset weakbuilding markets and wet weather disruptions to sugar milling in NorthQueensland,” said CSR CEO Alec Brennan.

“Whilethe contribution from CSR Property was down this half, the recent transactioncovering industrial land at CSR’s site at Erskine Park in Western Sydney willensure a satisfactory full year result.Aluminium continues to perform to expectations.

“Wecontinue to focus on improving our operating businesses and pursuing sensiblegrowth initiatives.With the improved outlook forworld raw sugar prices, we are looking moreactively for growth opportunities in sugar, in order to capitalise on CSR’sstrong position in the global sugar industry.This could include investment in Brazil, given its dominance as a globalproducer.

MrBrennan added, “There is a growing recognition in Australia that much moreneeds to be done to deal with the impact of climate change and CSR is wellplaced to play its part.

“Fuelethanol as a renewable fuel is now gaining rapid acceptance.We have just completed a major fuel ethanolexpansion in North Queensland and are actively exploring further capacityexpansion options on the east coast to build on our current strong position inthis market.

“CSR isalready a major renewable electricity producer.However, we have a number of additional projects that we think can makea significant contribution to greenhouse gas abatement in Australia.

“CSRBuilding Products has a rapidly expanding range of building productsspecifically targeting improved energy performance in residential and commercialconstruction,” said Mr Brennan

Financial review

CSR’scapital management program aims to lift the efficiency of the capital structurewhile retaining flexibility for future growth.Over the past 18 months CSR has returned $496 million to shareholders byway of dividends, capital return and share buyback.

Since July 2006 CSR has spent $109.8 million to purchase 4% of thecompany’s share capital at an average price of $3.07 per share.The board’s intention is to continue with thebuy-back of up to a further 5% of the company’s shares when the current programis completed.

CSR’sfinancial position remains strong, with net debt at 30 September 2006 of $600.2million and gearing (measured as net debt/net debt plus equity)remaining in line with last year at 32.8%.

CSR continues to pay a significant proportion ofsustainable profit as dividends, subject to the availability of frankingcredits.The interim dividend to be paidon 11 December 2006 will be 6 cents a share, fully franked.

Review of results by segment

Earningsbefore interest and tax (EBIT) by segment

Half year ended 30 September [$ million unless stated]











Building Products












Business segment total




Corporate costs




Restructure and provisions (1)




Total EBIT




Includes product liability and superannuation.

Sugar Trading revenue rose 27.0% to$803.2 million due to stronger world raw sugar prices. With around 72% of theraw sugar crop priced (as at the end of October 2006), an average price of $371per tonne has been assumed for this half, compared to the $316 per tonneachieved last year.

Earningsbefore interest and tax (EBIT) was $71.6 million, up 64.2% compared with $43.6million in the corresponding period last year. However, unseasonable wet weather throughoutNorth Queensland has materially disrupted operations during this halfyear.Wet weather raises processingcosts, reduces sugar yield and will delay some returns to the second half ofthe year.

Building ProductsTrading revenue of $510.2 million increased by 2.8%, primarily due togrowth in CSR Performance Systems (which includes the insulation, ventilationand panels businesses), as well as growth in sales volume from new products andservices.

However,EBIT was down 24.9% to $45.5 million due to continuing weak building activityin Australian east coast markets.Higheroperating costs, due to lower factory utilisation and increasing fuel andenergy costs, were partially offset by operational improvements.For the six months to September 2006 CSR’soperational improvement program delivered an additional $16.5 million.

AluminiumTrading revenue from aluminium sales, including hedging, increased 18.4%to$277.1 million, due to higherachieved prices and increased sales volume.

EBIT of$67.6 million was up 4.0%.However, EBITmargin was down due to higher alumina costs as a result of higher worldaluminium prices and increased smelter production costs.

PropertyProperty’s performance is driven by the timing oftransactions. Total revenue decreased 65.7% to $8.4 million and EBIT was $9.7million, down from $30.9 million last half.This result included the sale to ING of land located on the Erskine Parkindustrial development site.

Significant growth projectsunderway

SugarIn August 2006 CSR completed the 32million litre fuel grade ethanol expansion at its Sarina distillery,Queensland.CSR is at the advancedstages of a feasibility study to assess the construction of a large scale facility(~ 200 million litres) to supply major east coast markets.

CSR, incollaboration with the University of Queensland, is continuing to invest inresearch to develop high-yielding sugarcane varieties.In July 2006, CSR was awarded a $5 millionfederal government research grant (which will be paid over 3 years) as part oftheir Renewable Energy Development Initiative (REDI) funding program. The grantwill form part of CSR Sugar’s funding of a research program aiming to develop anovel feedstock for environmentally and economically sustainable production ofethanol.

Building ProductsTwo major expansions to increase capacity of low cost manufacturingoperations were delivered on time and within budget in PGH™ Bricks in Brisbaneand Bradford™ Insulation in Sydney.

To meetgrowing demand for CSR’s energy saving Rokcore™ panels in both Australia andAsia, CSR has constructed a A$20 million panels plant in Guangzhou, SouthernChina, and is currently commissioning this plant.CSR is also investing $43 million to build anew ‘world class’ 45,000 tonne Rockwool plant in Guangzhou, adjacent to thepanels plant to supply the rapidly expanding market, particularly in the powerstation and ship building sectors.

To reinforce its lowest deliveredcost position across the Australian plasterboard market, CSR Gyprock™ isprogressing with a 50% plasterboard capacity expansion at Coopers Plains,Queensland, and a 42% plasterboard capacity expansion at Yarraville,Victoria.

Outlook for the full year

Sugar Worldsugar prices have been volatile during the first half of the year.After a strong start, with prices peaking ataround US18.0 cents per pound, sugar prices fell towards the end of the half toaround US11.5 cents per pound.Theaverage world sugar price in the six months to September 2006 was US14.9 centsper pound.

As at theend of October around 72% of the crop has been priced so the outcome for theyear is still dependent on the prices to be achieved by Queensland Sugar forthe balance of the crop.If world pricescontinue to trade in the current range of US10.5 to US13.5 cents per pound,CSR’s average price achieved will be in the range of $355 to $380 per tonne.

Due tounseasonable wet weather in the first half, canecrushing will need to be extended into December, increasing the risk that theonset of the wet season will prevent the completion of harvesting.

Wetweather disruptions have also significantly increased operating costs andreduced the sugar content of the cane, both of which will adversely impact on profitability.At this stage, we are expecting raw sugarproduced to be around 6% lower than last year.

Building ProductsThe residential construction market wasslower than anticipated earlier this year, particularly in New South Waleswhere residential construction is at a 20 year low.The total number of new dwellings is nowexpected to fall by around 6%.Thereare differing views as to the likely timing of a recovery in the market.Commentators expect to see some signs ofrecovery during calendar year 2007.Given this outlook, earnings before tax will fall short of last year(excluding one-off costs).

AluminiumWith around 95% of our exposure to aluminium sales volume and currencyhedged for the year, we expect our earnings this year will be around 15% lowerthan last year.

PropertyEarnings are expected to be around 10% lowerthan last year following completion of several property transactions, includinga further sale of industrial land at the Erskine Park site in Western Sydneyand residential land at Ferntree Gully, Victoria.The transaction covering parkland and lakesaround the Chelsea sugar refinery in Auckland is now not expected this year.

Overall, our current view isthat CSR’s earnings before interest and tax for the year ended March will bemarginally behind last year.However,given the amount of sugar that remains unpriced and the volatility we have seenin the sugar price this year, there is still some uncertainty around thisoutcome,” said Mr Brennan.