CSR LIMITED INTERIM EARNINGS PER SHARE UP 10%

CSR Limited today announced a record net operating profit after tax of A$277 million for the half year ended 30 September 2001(HYES01), up 2% on the corresponding period last year.

Earnings per share (EPS) rose 10% to 29.1 cents. EPS has increased an average 13% p.a. compound over the past five years (since HYES96).

Other highlights

· Sales rose 9% to A$3,712 million

· Earnings before interest and tax (EBIT) was up 2% to A$514 million

· Earnings before interest, tax, depreciation & amortisation (EBITDA) rose 7% to A$739 million

· Operating cash flow was up 32% to A$545 million. Operating cash flow per share was 57.2 cents, up 42%

· Return on funds employed (ROFE) rose from 13.9% to 14.5% (12 months to September).

Strong performances from the US subsidiary, Rinker Materials Corporation (Rinker) – with EBIT up 10% in US$ - and Sugar (EBIT up 170%), and a weaker A$ currency lifted the result. These offset the impact of the Australian construction downturn on Building Materials (Australia, NZ & Asia) and Construction Materials (Australia & Asia), and divestment of the Gove alumina interests, which had contributed A$37 million EBIT in HYES00.

Total EBITDA from international building materials (Rinker, Construction Materials and Building Materials) rose 10% to A$604 million – or 82% of CSR Group EBITDA. The international building materials EBITDA margin was 20.2%, up from 20.0%.

CSR Limited Managing Director Peter Kirby said the result reflected the ongoing investment in value-adding growth and the focus on improving performance from existing assets. The improvement was particularly satisfactory given the significant 12% decline in total housing and construction activity in Australia during the half.

“Rinker continued to perform satisfactorily against its competitors in the US market, with the acquisitions overall delivering in line with forecasts. In Australia, despite the sharp fall off in activity, Building Materials’ performance was encouraging, and significantly better than the previous downturn in 1996-7, when housing starts dropped to a similar level,” he said.

Directors declared an interim dividend of 11 cents a share, 40% franked, payable on 17 December.

Financial position

Net debt declined from A$2,268 million as at September 2000 to A$2,130 million. Gearing (net debt / net debt plus equity) improved from 36.2% to 34.0%. Interest cover was 8.0 times, down from 9.4. Over 111 million shares have been bought back to date under the two buybacks since June 2000, at an average cost of A$4.91. The buyback is continuing, subject to other capital investment opportunities which may arise.

Business Performance

· Rinker EBIT was up 25% to A$335 million (up 10% in US$ to US$170 million). Rinker EBITDA was up 31% to A$483 million (up 16% in US$). Sales increased 21% to A$2,115 million (up 7% in US$). The EBIT/sales margin increased from 15.4% to 15.8%. US$ ROFE (for the 12 months to September) rose to 15.6%.

EBIT from Rinker’s concrete pipe business, Hydro Conduit, rose 25%. Strong increases in US$ sales and profit also came from Quarries S.E. (Florida and Georgia), with EBIT up 34%, Cement (up 18%) and Florida Materials (concrete and block), up 23%. Comparable aggregate volumes - adjusted for acquisitions and divestments - rose 1.8% and prices were up over 5%.

Acquisitions that will deliver their first full year of earnings in YEM 02 - including the major acquisitions, Florida Crushed Stone (purchased July 2000) and American Limestone (June 2000) - contributed US$33 million during the half.

· Construction Materials EBIT fell 33% to A$32 million, due to the slide in Australian construction activity and lower concrete pipe sales. The performance was however up significantly over the second half of last year. Profit from the Asian operations increased.

· Building Materials EBIT was down 44% to A$48 million, on a 20% decline in sales. Housing starts during the half were down 34% (lagged 3 months) on the previous corresponding period, which had included the pre-GST boom. ROFE was 15.6%, down from 25.6%. This compared with a ROFE of 6.8% at the bottom of the previous cyclical downturn in Australia.

· Sugar EBIT rose 170% to A$79 million, from A$29 million previously, mainly due to higher raw sugar prices. Distilleries EBIT rose 19%, on higher margins and sales growth, including new overseas markets. Profit from refining fell slightly due to higher input costs.

· Aluminium EBIT was A$55 million, down 49% on the previous result, which had included the contribution from the Gove alumina joint venture (GAL). A substantial level of hedging means the business is well-insulated against the current downturn in the aluminium market.

Strategy

The CSR Group’s drive for value-creating growth and performance continued during the half.

Rinker focused on bedding down the two major acquisitions made last year, Florida Crushed Stone and American Limestone, and on improving the performance of the base business. Rinker also completed two bolt-on acquisitions in the US – Mid Coast Concrete in Florida and Hanson’s aggregate and concrete operations in Las Vegas. Work is underway on several other bolt-ons, and the group is well-positioned to take advantage of opportunities during the current slowdown.

“The CSR Group’s strong financial position and cash flows around A$1 billion a year give us great flexibility,” said Mr Kirby. “We are now the 9th largest heavy building materials group in the world and we will continue to invest in bolt-on acquisitions in the US and elsewhere. We are cautious however in the current uncertain economic climate.”

Operational improvement across the group delivered A$55 million in cost savings during the half.

“The separation of CSR Sugar remains an important strategic objective,” said Mr Kirby.

“Although the sharply improved profit performance is a positive, the current global uncertainty means that no outcome is expected during the current financial year.

“While we continue to own the business, we will be working to maintain CSR Sugar as one of the world's most efficient raw sugar producers and we will pursue value creating investment opportunities in Australia if they arise.”

Outlook for the balance of the year

“Overall, the outlook is generally positive, but overlaid with caution,” said Mr Kirby. “In Australia and Asia we are starting to see some improvement in activity. In the US, current activity levels remain steady but the outlook, particularly the impact of the tragic events of September 11, is still unclear.

“US interest rates are the lowest for 40 years and a Federal stimulus package is being debated. The outlook for infrastructure is steady, and the US$216 billion TEA-21 transport program is continuing. In Florida last month, Governor Jeb Bush announced 62 road projects - worth US$688 million – to start between January and June 2002. With over 50% of the production of aggregates going into infrastructure, this is very reassuring.”

On housing, inventories are relatively low, and a solid level of activity is continuing – particularly in the US south where Rinker’s operations are mainly located. However consumer confidence is volatile and activity is predicted to fall further. Non-residential spending is also expected to fall.

“The economic slowdown will affect Rinker’s second half performance. However, we expect the impact to be partly offset by infrastructure related spending, assisted by various new government fiscal initiatives,” said Mr Kirby.

“The outlook in Australia is improving, and in the second half we expect to see the benefits of the First Home Owners Grant on housing activity. Major infrastructure projects, including the Geelong Road and Scoresby By-pass in Melbourne and the Parramatta to Chatswood rail link in Sydney, mean the construction sector is looking increasingly positive from the end of this year.

Mr Kirby said the second half would not see any profit contribution from CSR Sugar, due to the small sugar cane crop and short season. Harvesting concluded last week.

“CSR had a strong first half performance,“ said Mr Kirby, “but it will be difficult to match last year’s annual profit, which was boosted by the A$27 million one-off gain from the sugar terminal shares and the operating profit contributed by the GAL investment, before it was sold. 

“Nonetheless, we continue to push hard for a top quartile performance against our global building materials peers - improving comparative performance from our existing operations and acquisitions, and adding further value for our shareholders,” he said.