CSR Limited (“CSR”) today provided its first trading update for the year ending March 2008 (“YEM08”). At this stage of CSR’s financial year CSR expects group earnings before interest and tax (EBIT), excluding one-off costs associated with the acquisition of Pilkington, to be approximately 5% lower than for YEM07. A number of external factors negatively impacting Sugar milling are likely to be largely offset by improvement in Building Products. Net profit after tax will also be affected by increased interest costs largely due to the recent acquisition of the Pilkington glass business, and a higher effective tax rate because of the low level of available tax losses compared with previous years.
CSR Sugar’s refining, ethanol and co-generation businesses are performing well and are expected to deliver results ahead of last year. The milling result will be substantially lower than last year, largely due to a sharp fall in raw sugar prices, higher costs due to the sugar mills’ renewal program and the consequences of weather. Raw sugar prices have traded down between 5% and 15% since the start of this financial year, compounded by the strong Australian currency. As a result, despite hedging completed in previous years, the realised raw sugar price is likely to be marginally below A$300 per tonne. In addition, CSR’s milling areas experienced extremely wet weather, resulting in the latest start of the milling season in recorded history.The delay to the start of the crush will increase milling costs and shift profit recognition to the second half of YEM08. Overall the Sugar EBIT is currently expected to be between 40% and 45% below last year, assuming prevailing raw sugar prices continue and reasonable weather conditions during the remainder of the milling season.
Building Products YEM08 EBIT excluding the Pilkington acquisition is expected to be 15 - 20% higher than in YEM07. The improvement follows from the restructure of the Bricks and Roofing operation, sales growth in the commercial sector and further cost reductions. The acquisition of Pilkington will further lift earnings, with significant synergies expected to be achieved this year. In total, Building Products EBIT is currently expected to be between 70% and 75% higher in YEM08 compared with YEM07.
TheAluminium result for YEM08 will benefit from higher realised prices, however this will be partially offset by slightly lower production volumes and increased costs at the Tomago aluminium smelter. Consequently the YEM08 result for Aluminium is currently expected to be 2% to 4% higher than YEM07.
Property’s result is likely to be in the sustainable range of around $35 - $40 million, depending on the outcome of transactions currently in negotiation. A further trading update will be provided when CSR’s half year results are announced in November.