CSR announces full year net profit of $240.5 million for year ended 31 March 2007

CSR Limited (CSR) today announced a net profit before significant items of $240.5 million, down 3.7% for the year ended 31 March 2007.

Earnings per share before significant items were steady at27.4 cents benefiting from the share buyback during the year.

CSR’s total net profit after significant items was down10.4% to $273.3 million. The significant item of $32.8 million ($55.2million in the year ended 31 March 2006) comprised a $102.9 million net settlement of longstanding insurance litigation, offset by a $49.1 million after tax charge from restructuring the brick and roofing operations and a$21.0 million after tax increase in the product liability provision.

Profits fell due to adverse external market conditions for some of CSR’s businesses. In Sugar,profits rose although the milling season was interrupted by wet weather which reduced sugar production and yields and increased milling costs, offsetting some of the benefits of higher prices.

Building Products continued to be impacted by the ongoing slowdown in the residential housing market, particularly in New South Wales.

Aluminium’s results were down due to lower hedged prices and higher costs. Property produced another solid result, slightly below last year.

CSR continues to pay a significant proportion of sustainable profit as dividends. The final dividend to be paid on 3 July2007 will be 9 cents a share, bringing total dividends for the year to 15cents, fully franked.

Financial results summary

Full year ended 31 March
[$ million unless stated]



% change

Trading revenue




Earnings before interest and tax – EBIT




Net profit before significant items




Earnings per share before significant items a [cents]




Return on shareholders’ funds b [%]

(net profit before significant items/shareholders’ funds)



As at 31 March



Gearing – net debt / net debt + equity b [%]



a Based on shares on issue as at 31 March.
b Restatedto exclude the fair value of hedges from equity.

CSR’s new managing director,Jerry Maycock joined the company as an executive director in February 2007 and became managing director on 1 April 2007. He is undertaking a detailed review of the company’s businesses to identify opportunities to increase growth, reduce costs and drive greater returns from its assets.

“CSR is actively investing in its businesses with $450 million in development and acquisition capital expenditure (excluding Property) spent in the last three years,” Mr Maycock said.

“We are committed to further investment in our current operations to improve efficiency and future financial results,particularly as there are factors influencing our businesses in the medium-term which provide a better outlook for the company.

“Two new projects in Melbourne include the$140 million investment to rebuild and expand our Gyprock™plasterboard plant and the $56 million upgrade of a Sugar Australia refinery.

“We will continue to take opportunities to invest in products that improve energy efficiency and environmental sustainability. Recent projects include the expansion of CSR’s capacity to produce renewable fuel ethanol and Bradford™glasswool insulation which reduces heating and cooling energy use by up to 40%. A feasibility study for another major project is nearing completion,” Mr Maycock said.

Financial review

CSR continued to generate cash strongly with cash flow from operating activities of $380.1 million, excluding the $196 million from settlements from insurance litigation, up 20% from $317.1 million,

In July 2006, CSR announced a 12 month on-market buy back of up to 5% of its shares. To date,$114.5 million has been invested to buyback 4% of the company’s shares at an average price of $3.06 per share. Further opportunities for capital management are under review.

CSR’s financial position is strong, with gearing (measured as net debt/net debt plus equity) of 25.3%, and net debt of$448.6 million. The company’s strong cash flow underpins its flexibility for growth.

Significant items

In December 2006, CSR Limited reached a settlement of longstanding litigation with certain members of the ACE InsuranceGroup (ACE). ACE was among a number of insurers sued by CSR in New Jersey in 1995. CSR sought indemnity for US asbestos claims under policies issued to CSR from approximately 1978 to 1989, together with other damages and relief. The settlement with ACE of $102.9 million(net of litigation costs) is recorded as a significant item.

This settlement concludes claims against all defendants in the New Jersey litigation, other than those few defendants thatCSR believes to be insolvent.

CSR's provision for product liability is determined using reports provided by independent experts in each of the UnitedStates and Australia. CSR has included within the provision an appropriate prudential margin. The company has increased its product liability provision by $30.0 million to $388.0 million to take account of developments in asbestos litigation in each of the United States and Australia,advice received from independent experts and the release of certain insurance policies which CSR believes provided coverage for asbestos-related claims.

PGH™ Bricks and Monier™ and Wunderlich™ Roofing operations have been restructured as one business unit to streamline overhead costs with the permanent closure of two brick factories. An after tax provision of $49.1 million was recorded in the results as a significant item relating to the write-down of affected assets and associated closure and support costs. This restructure is expected to produce potential cost savings of up to$20 million per year on a continuing basis.

Review of results by segment

Earnings before interest and tax (EBIT) by segment –excluding significant items

Year ended 31 March

[$ million unless stated]



% change





Building Products




Less plant closure costs














Business segment total




Corporate costs



Restructure and provisions



Total EBIT





Earnings before interest and tax (EBIT) rose 5.2% to$130.1 million.

Raw Sugar’s revenue significantly increased with generally higher – but still highly volatile – world sugar prices. However, the benefits were largely offset by lower sugarcane crop volumes, higher maintenance expenses and increased costs resulting from the extended milling season due to unseasonable wet weather.

Refined Sugar’s earnings fell slightly with reduced demand by industrial sugar customers in response to higher prices, despite improved retail market share and tight cost control. However, sugar prices have since fallen from their peak in February 2006and margins are now improving.

In March 2007, Sugar Australia (CSR 75%) launched a $56million major upgrade of the Yarraville refinery, Melbourne which will upgrade equipment to improve efficiency, reduce costs and improve environmental protection.

Ethanol’s returns improved with stronger demand even though costs were driven up by the increased price of the raw material, molasses. Increased demand for renewable fuel ethanol improved sales volumes and prices.

Last year’s difficult milling season revealed short comings in equipment reliability in several of CSR’s raw sugar mills. The company has commenced a three year capital expenditure program to restore the efficiency of our operations and ensure that the mills remain competitive in the global market. The scope and timing of this renewal program will be adjusted each year,based on the profitability level of the business and medium-term outlook for sugar prices to ensure that returns on the funds invested are optimised.

Outlook: Based on current price forecasts, Sugar’s total result is likely to be materially below last year, although better returns are expected from Refined Sugar andEthanol.

Raw sugar production should be broadly in line with last year, even though this year’s sugarcane crop is expected to be lower due to the impact of the unseasonably wet weather experienced last year. However, assuming there is no repeat of abnormal weather during the impending harvesting season, sugar recovery in the milling process will be higher.

The world raw sugar price is likely to continue to be volatile, with supply outgrowing demand in the short term. Hedging completed in previous years (over 60% has been hedged at approximately $350 per tonne) will help underpin a sugar price to CSR in a range of about $300 to $330 per tonne.

As part of the mills’ renewal program CSR will incur around$10 million of additional operating costs.

Building Products

With CSR’s main markets for its building products mainly located in Australia’s eastern states, returns have been significantly affected by the downturn in the residential housing market.

EBIT of $84.5 million was up from the previous year’s$80.9 million, although the latter included $20.6 million of one-off costs associated with closing two plants. Excluding these costs, EBIT was down16.7%. Higher operating costs, due to reduced factory utilisation and increased fuel and energy costs, were partly offset by operational improvements.

Work continues to ensure that CSR is prepared to maximise returns when the residential building market begins to turn around in response to the pressure of underlying demand for new dwellings.

Performance Systems’ markets for Bradford™ insulation,Edmonds™ ventilation products and Bradcore™ panel systems continued to expand both in Australia and Asia. To meet growing demand across the region, a new production line was completed at the Bradford™ glasswool insulation factory in Sydney and a Rokcore™ non-combustible commercial panels plant in China.

A $140 million program is underway to upgrade theMelbourne Gyprock™ plasterboard factory to a larger capacity, environmentally sustainable plant that will deliver the industry’s lowest through-the-cycle delivered cost.

PGH™ bricks and Monier™ and Wunderlich™ roofing operations have been restructured as one business unit to streamline overhead costs and to better service the market. In Brisbane, the expansion of a low cost brick plant was completed to allow for the closure of an older, less efficient operation at Strathpine. Development options are under review for the 140 hectare Strathpine site in the rapidly growing region north of Brisbane.

To contain costs further, six brick kilns have been mothballed, product lines rationalised and the small brick factory in Bathurst,NSW has closed. This restructure is expected to produce potential cost savings of up to$20 million per year on a continuing basis.

Outlook: The residential construction market is forecast to remain relatively flat in the eastern states, although the Queensland market may show some signs of recovery later this year. EBIT should be higher than last year, with sales growth in the commercial sector as well as stronger growth from some product sand further cost reductions.


CSR’s 70% share of Gove Aluminium Finance Limited’s (GAF) net profit before finance costs fell 9.0% on the prior year’s record to$70.0 million. The average realised aluminium price after settlement of hedges was A$3,028 per tonne, up 7.4%, as a result of improved world prices.

Profit was below the previous year’s record reflecting lower prices for aluminium hedged in previous years and higher production costs

Outlook: GAF’s earnings are expected to rise as a result of higher hedged prices while sales tonnage will be similar to last year. Hedging completed in previous years will increase A$ returns above last year although US$ aluminium prices are likely to decrease as the global supply of aluminium grows to exceed demand. An active hedging program continues, with a substantial portion of net aluminium exposure hedged for this year, locking in an attractive level of returns.


Property’s earnings are predominantly based on a limited number of relatively large transactions. Last year, the main contribution was the sale of 38 hectares of land in the Erskine Park industrial development site in western Sydney.

Earnings before interest and tax (EBIT) were$69.7 million, down from $75.6 million which included two large property transactions.

Outlook: This year, Property’s results are expected to return to a more sustainable level in the range of $30 to $40 million per annum.

The year ahead

Mr Maycock commented that his early priorities for the year ahead will be to assess further opportunities for growth, while focusing on a number of initiatives in each business to enhance performance and reduce costs.

“CSR has a great brand and an exciting future, albeit with shorter term challenges. At this early stage in the year, we expect the overall EBIT result is unlikely to reach last year,” Mr Maycock said.

“The medium term outlook for our businesses is positive as we will begin to benefit from recent investments to improve performance and we have a number of interesting growth opportunities under review both in our current operations and by external acquisitions.”