CSR Limited today announced a net profit of A$351.1 million for the year ended 31 March1999, up 22.0% on the previous year’s net profit before abnormals of A$287.8million. Trading revenue was up 2.7% to $6,507 million*.

Profit margin (earnings before interest and tax to trading revenue) rose from 9.3%to 10.7%. Return on funds employed was 12.6%, up from 10.9%.

The Board has increased the final pidend by one cent to 12 cents per share. Thismakes a total of 23 cents for the year, from 22 cents in 1998, up 4.5%.Franking remains at one-third. Record date is 9 June, with the pidendpayable on 6 July.

Strong levels of activity in the US and Australian building and constructionsectors, a focus on reducing costs and improving productivity, and favourableA$-US$ exchange rates helped CSR offset a poor sugarcane crop and weakersugar and aluminium prices, said Managing Director Peter Kirby.

CSR achieved price and volume gains in most building and construction materials products.Performance improvement cost savings were also a factor in the company’simproved results. These savings totalled A$103 million in 1999, compared withA$90 million in the previous year.

Business results included:

• CSR America EBIT was up 30.7% to A$238.7 million, from A$182.7 previously. Revenue was up 25.1% to A$2,438.7 million. Allowing for the sale of American Aggregates during the previous year, sales were up 27.6%. In US dollars, EBIT rose 11.8%. US dollar sales rose 8.3%, or 10.7% allowing for American Aggregates. Sales of pipe and concrete products rose by 12%, due to higher volumes and new acquisitions, whilst EBIT to sales margins also rose.

• Construction Materials (Australia and Asia) EBIT was up 11.3% to A$116.8 million. Revenue was up 2.9% and EBIT to sales margins rose from 8.2% to 8.9%. The result was due to strong commercial and infrastructure project markets, particularly in Sydney and Melbourne, offset by reduced sales and profits from contract mining, and lower profits from CSR’s investment in Australian Cement Holdings.

In Asia, Construction Materialsrecorded a small loss of A$0.6 million compared to a loss of A$3.8 million in1998. Excluding Asia, margins for Construction Materials rose from 8.8% to9.3%.

• Building Materials (Australia, New Zealand and Asia) EBIT was up 40.2% to A$130 million. Revenue increased 3.4% after several pestments. Margins rose from 11.6% to 15.7%. Prices and volumes improved in most products. A further factor in improving margins was A$17 million in savings from performance improvement.

In Asia, Building Materials lost A$7.5million compared with a loss of A$7.8 million in 1998. Excluding Asia,margins rose from 14.2% to 18.2%.

• Sugar’s profitability was severely eroded by heavy rains, which reduced harvest volumes and the sugar content of the cane. We estimate around A$28 million in EBIT was lost. Nonetheless, hedging of prices, significant gains in distillery earnings and improved returns from the Sugar Australia and NZ Sugar Company sugar refining joint ventures helped support profits. EBIT fell 8.6% to A$90.6 million, from A$99.1 million.

• Timber EBIT rose 40.3% to A$42.1 million, largely due to savings from performance improvement initiatives. Medium density fibreboard (MDF) volumes rose strongly and some small price gains were achieved in the final quarter. Solid timber prices rose strongly in the first half but fell sharply in the second half, due to lower priced imports. Pre-commissioning work on the Featurpanels factory and the now completed MDF plant at Oberon, NSW impacted negatively on profits.

• Aluminium EBIT was A$125.1 million, down from A$133 million in 1998. Margins fell slightly from 32.8% to 30.3%. Hedging programs helped offset sharply lower world aluminium prices.

Capital expenditure rose to A$606 million, from A$538 million. Almost 60% was spentin the US, where development expenditure included three concrete pipe andproducts businesses, two sand quarrying businesses and A$102 million towardsthe A$220 million Florida dry-process cement mill which is due to commenceproduction in January 2000. In Australia, expenditure included A$36 milliontowards the 10% capacity expansion at Tomago aluminium smelter in NSW, whichwas completed ahead of schedule and below budget. Operating capital expenditurefell from A$249 million to A$184 million, equivalent to 57% of depreciation.

Operating cash flow rose 9.6% to a record A$912.0 million, from A$832.0 million, mainlyas a result of improved trading profits, particularly in CSR America.

Gearing (netdebt to equity plus net debt) was 32.6% at 31 March 1999, down from 34.2% in1998. Total debt fell by A$254.1 million to A$1,837.3 million, after allowingfor the adverse currency translation impact on CSR’s mainly US-denominateddebt. Interest cover rose to 5.3 times from 4.3 times.

An increased focus on safety helped drive a 24% fall in CSR’s lost time injury frequencyrate, although tragically, two employees died as a result of accidents.

OUTLOOK

Mr Kirby said that while the current performance for CSR’s building and constructionmaterials businesses remained strong, he was cautious about the outlook forthe current year at this early stage.

"In the US, activity remains strong and a 45% increase in federal infrastructurespending (TEA-21) should help offset any decline in constructionactivity," he said.

"In Australia, any slowdown in housing should not be as sharp or sudden as insome past cycles, due to low inflation, low interest rates and the lack ofover-building. The proposed goods and services tax, if it is introduced, islikely to bring forward some housing construction. New infrastructurespending, and many small and medium construction projects – delayed due tothe Olympics – will help maintain activity at lower, but reasonably strong levels."

Weak sugar prices will have a significant impact on this year’s results, partiallyoffset by expectations of higher crop volumes. Despite good hedgingpositions, aluminium’s performance will also be affected by lower prices.

"The overriding objective for CSR is to create shareholder value through theeconomic cycle," said Mr Kirby.

"Our priorities for the current year therefore include driving operating costsavings, managing the impact of the downturn on CSR, and maintaining cashflows at a high level.

During theyear, CSR announced the sale or restructuring of businesses includingcontract mining and some timber assets. After year end we announced the saleof the plantations and solid timber processing assets in south eastAustralia. Sales announced since April 1998 total $380 million. There will bewill be some short term negative impact on profit from these pestments.

"We are continuing to narrow our business focus by pesting non-performing andnon-strategic assets, while investing in selected growth businesses -particularly construction materials and concrete pipes internationally. With37% of revenue now coming from US operations, and the majority of growthcapital being spent on acquisitions and developments outside Australia,earnings will come increasingly from overseas," said Mr Kirby.

"The development of growth options for our sugar business will also continue andwe will intensify efforts to seek value-creating opportunities for the saleor restructure of our timber and aluminium assets," he said.

"Overall, the year just concluded has been one of satisfactory progress, both in termsof the business performance, and restructuring the company for the future.

"CSR is in transition and will be a markedly different company within a fewyears."