1 November 2019

CSR Limited announces half year net profit after tax of $68.8 million

CSR Limited (CSR) has reported statutory net profit after tax of $68.8 million for the half year ended 30 September 2019, up from $26.8 million in the prior comparable period which included impairment charges from the Viridian Glass business (sold on 31 January 2019).  Net profit after tax (before significant items) of $71.6 million, was down from $89.6 million in the prior comparable period ¹.

Building Products EBIT of $95.9 million was down 18% as the slowdown in residential construction activity impacted performance in the half.  This decline in activity has seen housing commencements across the industry down on average 19%.

Despite the broader market slowdown, CSR’s largest businesses of Gyprock and Bradford delivered steady volumes and earnings as they benefitted from a diversified revenue base across residential and commercial sectors.  However, Hebel and AFS earnings were lower as they have significant exposure to the high density market which was down 38% during the period.  The higher fixed cost position in PGH impacted earnings in the first half but fixed costs have been reduced following the July 2019 closure of the Darra brick plant in Queensland.

In Aluminium, EBIT increased by 10% to $25.4 million as input costs stabilised.  While no Property earnings were recorded during the period, significant progress was made on key development projects, which will secure strong Property earnings in future years.

The CSR Group delivered EBIT from continuing operations of $113.1 million (before significant items), 16% lower than the prior comparable period[1].

CSR finished the period with a strong net cash position of $141.6 million.  The board declared an interim dividend of 10.0 cents per share along with a special dividend of 4.0 cents per share (both franked to 50%).  The special dividend takes into consideration the Company’s strong cash flow and financial position whilst delivering available franking credits to shareholders.  The previously announced $100 million share buyback is ongoing with $47 million of shares purchased to date.

Commenting on the results, CSR CEO & Managing Director Julie Coates said, “The business has performed solidly in light of challenging market conditions in the residential construction sector.  While in the short term we are focused on managing the business prudently, we remain committed to continuing to diversify our earnings across both residential and commercial construction.” 

Sale of 20-hectare industrial site at Horsley Park for approximately $140 million

CSR also confirmed today the sale of the second tranche of surplus land at Horsley Park, NSW for total sale proceeds of approximately $140 million.  The sale of the 20-hectare site is expected to generate Property EBIT of approximately $90 million.  These earnings will be split into two 10-hectare stages which are expected to be recorded in the financial years 31 March 2021 and 2023 (YEM21 and YEM23).

Julie Coates noted, “While there was no EBIT contribution from Property in the half, we have made very good progress on property development activity including the sale of Stage 2 at Horsley Park.   

This project has required major rehabilitation on the former quarry to prepare the site for future industrial development.  The strong demand for this property highlights the value uplift we can deliver by managing large scale redevelopment projects with a number of major developments underway as CSR continues to optimise its site network.” 

 Outlook

Regarding the outlook for the year ending 31 March 2020 (YEM20), CSR confirmed:

Building Products – Given the subdued immediate outlook for the housing construction sector, it is difficult to predict activity over the near term. As per previous years, the results in the second half are expected to be lower than the first half due to the seasonality in volumes.  In the medium to longer term, demand for CSR’s building products will continue to be supported by housing activity driven by population growth, high employment and low interest rates.  This is also supported by the recent improvement in lead indicators including increased credit availability and improving house prices.

Property – Due to the transaction terms, the proceeds of the sale of 20 hectares of land at Horsley Park are expected to be recorded in YEM21 and YEM23. While ongoing development continues on a number of projects, due to revenue recognition requirements, any additional sales confirmed in the second half of the year are not expected to result in material levels of earnings being recorded in this financial year.

Aluminium – The increase in first half earnings reflects the benefit of the current hedge position which remains at this level for the second half of the year. As of 31 October 2019, 72% of net aluminium exposure for the second half of YEM20 is hedged at an average price of A$2,763 per tonne (excluding ingot premiums). 

CSR Group - CSR notes that there is a wide range of analysts’ forecasts reported on Bloomberg for YEM20 net profit after tax (before significant items) of $107 million to $168 million.  Noting that the YEM20 results are unlikely to include any significant earnings from Property, CSR expects to deliver net profit after tax (before significant items) between the low end ($107 million) and median ($133 million) of this range.

[1] CSR adopted AASB 16 Leases effective 1 April 2019, resulting in an increase to EBIT of $3.5 million and decrease to NPAT of $0.9 million for the half year to 30 September 2019.  The comparative period has not been restated, refer to Note 19 in the half year report.