CSR Ltd

ASX:CSR

Earnings Call Transcript 2024-Q4

[Bec Thompson, executive]

Good morning, everyone. I'm Rebecca Thompson, CSR's Head of Investor Relations, and I'd like to thank you for joining us for our results for the year ended 31st of March 2024. Today, CSR's Managing Director and CEO, Julie Coates, together with CFO, Sara Lom, will present the full year results.As previously advised, there will not be a Q&A component on this occasion. There will, however, be an opportunity for investors to ask questions at the Scheme Meeting on the 13th of June.I'll now hand over to Julie to present the results.

[Julie Coates, executive]

Thanks, Bec, and good morning, everyone. Starting with the agenda on Slide 2, I'll give an overview of our results and our safety performance. Sara will then run through our financials, after which I'll cover the performance of Building Products, Property and Aluminium, and then make some closing remarks.So I'll get straight to the result highlights on Slide 4. We are pleased with how the business performed this year. We've seen strong operating discipline and execution from the team, as well as the benefits of our strategy coming through in performance. Group revenue was steady and net profit after tax before significant items was up 7%.Group EBIT of $332 million included another record result in our core Building Products business, with EBIT up 8% on last year and an EBIT margin of 15.5%. Given the proposed acquisition of CSR by Saint-Gobain by way of scheme of arrangement as announced on the 26th of February this year, the CSR Board has not declared a final dividend. An interim dividend of $0.15 per share was paid following the half-year result. Please refer to the Scheme Booklet released to the ASX on the 26th of April 2024 for further information about the scheme.We continue to have a strong balance sheet. Our disciplined approach to capital allocation, together with improved cash flow generation across the business, has resulted in a net cash position.Now focusing on safety on Slide 5. We worked hard to significantly reduce the severity of injuries and we've had fewer recordable injuries this year than last year, resulting in an improvement in our TRIFR. Importantly, the TRIFR is now less than 10.We continue to work on addressing high potential consequence risk to reduce the risk of serious injuries to our team. This includes specific mitigation plans and a continued rollout of CSR's Never Walk Past program to build a mindset to never walk past an unsafe act or condition. Response plans are also in place to reduce low consequence risks to bring down the overall TRIFR. CSR's goal is 0 injuries and as of the 31st of March 2024, 80% of CSR sites have achieved this.On Slide 6, I'll focus first on the result delivered by our core Building Products business. Revenue was up 3%, driven largely by price increases to recover input costs. We maintained our disciplined approach to managing cost inflation, and this, coupled with improved factory efficiency and operational performance, supported 8% earnings growth and an EBIT margin of 15.5%. We continue to invest in our factories to improve efficiency and capacity, and in our strategy to improve performance through the cycle. In Property, we achieved earnings of $91 million with the settlement of 2 tranches of Horsley Park land sales. Remediation work at Darra is complete while development work at Schofields and Badgerys Creek continues.Earnings for our Aluminium interest were impacted by ongoing cost volatility, particularly energy costs, resulting in a loss of $29 million, down from a profit of $8 million in the prior year, which included $13 million of net RERT income.I'll now hand over to Sara to talk more about our financial performance before I cover our Building Products, Property and Aluminium results in more detail.

[Sara Lom, executive]

Thanks, Julie and good morning, everyone. I'll move straight to Slide 8 to cover group performance. Group revenue was flat at $2.6 billion, while the gross margin improvement reflects our pricing discipline to manage cost inflation as well as strong operational performance.Our factories have performed well with incremental investments in our manufacturing sites delivering efficiencies. Warehouse and distribution costs were down 4%, reflecting lower shipping costs for aluminium and the benefit of our supply chain strategy, which mitigated cost inflation for Building Products.The increase in SG&A largely reflects inflation and the inclusion of the Woven Image business from September. It also includes sales and marketing investments, particularly in our Gyprock Trade Centres network. The other line includes profit from sale of Horsley Park stages 3A and 3B, less closure costs for Bradford Energy and the MonierRosehill manufacturing site. And lastly, net finance costs were lower due to reduced FX volatility for aluminium.Our improved cash flow on Slide 9 reflects strong cash flow generation from our Building Products business. In terms of working capital, Building Products were stable, while Aluminium had a $29 million working capital inflow, primarily due to the timing of aluminium sales and shipments.We spent $139 million in CapEx in the year, which I'll talk about on the following slide. Net Property proceeds of $142 million primarily reflects the Horsley Park settlements of stages 3A and 3B, net of associated CapEx to deliver these sites as well as CapEx to progress other key property sites. Tax payments remained broadly in line with last year. Our strong balance sheet position has continued to support investment in our business with the $43 million acquisition of Woven Image in the first half a good example of this.On Slide 10, it shows we've stepped up our CapEx spend as the environment to execute on capital projects has improved. These investments are in line with our capital allocation framework that we took you through at the half year with a focus on investing in our brownfield factories.Our total CapEx during the year was $139 million, split $61 million development and $78 million operating. CapEx included an additional strategic property acquisition at Queanbeyan, when combined with timing of project spend, took total CapEx above the $120 million flagged at the half year.Over the past few years, delays relating to COVID restriction and overseas supply chain disruptions have impacted our ability to execute on major projects. As a result, there's been an element of catch-up in the last 18 months with the $13 million Bradford Brendale investment and the $23 million Gyprock Wetherill Park upgrade now both operational. We've progressed the staged $65 million Martini Villawood capacity and site expansion, and we've also acquired an adjacent site at Wetherill Park and a property in Queanbeyan for Gyprock aligned to our network strategy.I'll now hand back to Julie to cover the business results in more detail.

[Julie Coates, executive]

Thanks, Sara. I'll move straight to Slide 12 to give an overview of the results for our core Building Products business. This was another record Building Products result with revenue growth in Interior Systems and Construction Systems. This slide demonstrates the depth and breadth of CSR's range of products and brands, and a distribution platform that serves multiple channels, including direct to builders, the architects and designers that specify jobs, as well as resellers, retailers and trade contractors. Importantly, we have a brand portfolio that serves diverse end markets across detached, multi-res and commercial.Now, looking at the result in more detail on Slide 13. Revenue growth reflects consistent price discipline across the business, and we also had some volume growth in Hebel. Both EBIT and EBIT margin were up with a full margin of 15.5%, which was a great outcome. It's worth noting that we had an out-of-cycle price increase in the second half of last financial year. This year, we returned to a more normal cadence of annual price increases. We've worked hard to manage cost and improve productivity, with a strong focus on delivering operating efficiencies and making incremental investments in our manufacturing sites to make them more productive.Our margin reflects not only our discipline in managing inflation and cost, but also the strategic work to deliver improved margin performance through the cycle and our return on funds employed is steady.Here on Slide 14, we again outline the composition of our earnings and how we've grown the contribution of our key products to represent close to 80% of total Building Products earnings. Those key products are Gyprock, Bradford and Hebel, and they're key because they span the spectrum of end markets we serve and represent the diversity we seek to replicate across our entire portfolio. We've invested in these businesses to grow their market share and in each case, their brand name is synonymous with their category, Gyprock with plasterboard, Bradford Bats with insulation and Hebel with wall cladding.Now turning to Slide 15, which of course is a slide you'll also be familiar with. CSR's strategy is focused on providing a platform for growth and resilience to deliver improved performance through the cycle.The work we've undertaken on strategy has made us more responsive to demand and is driving growth and resilience in this business. We continue to be focused on ensuring we deliver our results while making investments for growth.On Slide 16, overall revenue for interior systems grew 7%. Gyprock generated strong revenue and earnings growth, which reflects the strength of the brand, its market position as well as good execution by the team. The team successfully delivered price increases to offset high input and distribution costs. This resulted in an improved margin, which also demonstrates our continued focus on operational efficiency and cost discipline.We achieved some key strategic goals in relation to Gyprock during the year with the Wetherill Park house [ designing ] plan upgrade now operational, our Coopers Plains investment underway and enhanced customer experiences at our Gyprock Trade Centres. Our commercial fit-out earnings grew via our Himmel, Potters, Martini and recently acquired Woven Image businesses. This reflects both increased market share in acoustic systems and the benefits of our project tracking initiative. It also demonstrates our strategy to diversify our end market exposure to improve performance through its cycle.Now moving to masonry and insulation on Slide 17. While revenue was marginally lower, there was solid operational performance across the product suite with a focus on safety, productivity, quality and cost management. Bradford delivered earnings and margin growth through price, strong operational performance and improved customer service. We were pleased to have completed the capacity upgrade project at Bradford Brendale during the year, which had been a strategic priority, as was our exit from the low-margin energy business.Monier's performance was steady after normalizing for the cost associated with the pending closure of the Rosehill manufacturing site. And our PGH business was impacted by lower demand and higher energy costs. As we flagged at the half year, following a couple of busy production years, we undertook more comprehensive brick factory maintenance and planned longer shutdown periods to also manage inventory.Moving on to construction systems on Slide 18. Key brand Hebel delivered solid volume revenue and earnings performance with market share and category gains. By category share, we mean a share of the facade market in detached that includes bricks, fiber cement and weatherboard, as well as intertenancy and party walls in the apartment market. To take advantage of this market penetration, we added an extra shift at the Hebel factory to make it a 5-day, 24-hour operation.We were pleased with the margin improvement achieved in our AFS business, with price increases, factory efficiencies and procurement benefits contributing to the positive outcome. The Cemintel performance was slightly down on the prior year due to lower volumes.Slide 19 illustrates the meaningful benefits from our customer solutions focus, particularly our project tracking initiative and working as one CSR. Our sales team targeted more projects and grew the number of CSR products and systems used in large-scale developments.In addition, the team has done some great work developing our digital tools, which add value to our customers and help keep CSR front of mind for existing and future customers. We've also had very positive feedback about our Design Link team who provide technical and design guidance across all of our brands.Now Slide 20 covers the good progress we've made with our supply chain initiatives. These initiatives are critical foundations to enable growth and drive improved productivity and better outcomes for our customers. The momentum we gain by executing on this strategy is evident in this year's results. Integrated business planning is now well embedded across CSR and this has been supported by the establishment of a national team to meet customer requirements and manage inventory.Our transport management system, or TMS, was deployed across Hebel customer deliveries in the first half of the year and is now operational for deliveries across all of our brands. Our new national transport hub of transport experts has improved on-time delivery by 10%. We rolled out digital time slotting to major Gyprock DCs, which led to a 40% reduction in truck turnaround time and less waiting time for customers collecting orders. And we completed network strategies for Bradford and Gyprock to inform requirements to meet demand growth, which led to capital investment decisions for Gyprock Coopers Plains and Bradford Ingleburn.Now on Slide 21, we move on to our Property results, which are summarized on the following page. Slide 22 shows that $91 million of Horsley Park contracted earnings settled in YEM24. Property generated strong cash flows with a net contribution of $142 million, including proceeds of $177 million, which primarily relates to Horsley Park. We undertook $35 million of property CapEx during the year, mainly relating to the remediation of Darra, Schofields, Badgerys Creek and Horsley Park.Slide 23 takes us to our aluminium interest, the results of which are summarized over the page. The earnings bridge on Slide 24 illustrates the range of factors that influence the performance of our aluminium interest. We flagged a loss of this magnitude at the half year with sustained higher energy and coal pass-through costs reflected in the full year $29 million loss. The business improved in the second half as cost pressures eased, with a second half loss of $5 million against a $24 million loss in the first half. Pleasingly, Aluminium turned to profit in March this year.So, in conclusion, on Slide 26, the team has delivered another record result in Building Products while making good progress on our strategy with targeted investments in supply chain, customer solutions and manufacturing productivity. This is making us more responsive to demand and driving growth and resilience in this business. The improvements we have made position the business for better margin performance through the cycle. You are already seeing this in the results we delivered today with our track record of margin management, our disciplined approach to capital allocation and strong operating cash flows. So, that concludes the presentation of CSR's results for the 2024 financial year.Ladies and gentlemen, thank you all again for your time today and as always, we appreciate your interest in CSR. Thank you.

[Operator]

Thank you. That does conclude our conference for today. Thank you for participating. You may now disconnect.