CSR’s building products division delivers record earnings, despite profit downturn

Building supply specialist CSR (ASX: CSR) has reported a record half year performance from its building products division.

Earnings before interest and taxes (EBIT) for its building products were up 18% to a record $165 million with strong growth in Gyprock, Hebel and Bradford volumes.

Managing director and chief executive officer Julie Coates said the record performance was also boosted by improved factory efficiency and operational performance which saw the EBIT margin improve by 100 basis points to 16% and return on funds employed increase to 31%.

Profit down on lower property and aluminium returns

However, CSR’s overall profit was down by around 15% to $94 million after a disappointing period for its property and aluminium divisions.

Ms Coates said the property business EBIT of minus $1.5 million came after a reporting period where no material transactions were recorded.

This was compared to $28 million of property transactions which settled in the previous period.

The company did note that $44 million of Horsley Park, NSW earnings are contracted for the next half.

Aluminium also recorded a loss with an EBIT of -$24 million, with CSR pointing the finger at significantly higher energy, coal pass-through costs and raw material costs.

Operational overview and strategy looking forward

“CSR’s core building products business has performed well with record first half earnings as the team executed to capture the positive market opportunity and offset inflationary pressures,” Ms Coates told shareholders.

“The group result was impacted by input cost volatility in our aluminium business and timing of property earnings with $44 million contracted to settle in the second half.”

“In building products, our performance reflected strong pricing discipline as well as volume growth across Gyprock, Hebel and Bradford which was supported by improved factory efficiency and operational performance.”

Ms Coates said CSR has a strategy to improve momentum, which is expected to help drive improved business performance and responsiveness as well as better sustainability outcomes.

“We continue to progress execution of our supply chain initiatives with our transport management system being rolled out across sites for customer deliveries.”

Market trends and projections

“The detached residential pipeline is still 50% above historical averages, and while completions are now marginally higher than commencements, lead indicators suggest the stabilisation of approvals. The pipeline is anticipated to support near term activity, while population growth from net overseas migration will generate housing demand and significant federal and state government housing programs should bolster supply in the medium term.”

Ms Coates said the company’s acquisition of sustainable and acoustic finishes company Woven Image and staged investment in CSR’s Martini Villawood manufacturing facility will support continued growth in the non-residential market.

“Importantly, our high-quality products and brands serve diversified end markets and are adaptable to changing demand. Close to 80% of our earnings are derived from products with applications across multiple building segments.”

“Our strong balance sheet and disciplined approach to capital allocation positions CSR well to continue to invest in the business and deliver healthy shareholder returns.”

Second half forecasts

CSR is predicting further strong growth for its building products division which has already made a strong start to the second half.

“The pipeline of detached housing projects under construction sustained at around 50% above historical averages, the multi-residential pipeline represents two to three years’ work, and non- residential activity is supported by a large pipeline of approvals,” Ms Coates stated.

Notably, the property division will include $44 million in contracted earnings from the next tranche of the Horsley Park development.

The company is also progressing the sale process for the Darra, Queensland site, while work is ongoing for major projects at Schofields, NSW and Badgerys Creek, NSW.

Aluminium concerns remain

CSR has been forced to revise its forecasts for its aluminium division due to ongoing concerns surrounding energy and raw materials cost volatility.

The company said the best estimate for year end March 2024 (YEM24) is a loss in the range of -$15 million to -$30 million (excluding net RERT income, which was $13 million in YEM23).

However, the company remains confident that aluminium will return to profit in YEM25 with earnings increasing further in the following years due to higher hedged aluminium pricing and lower raw material costs.