Battered CSR looking up

Press, 2 July 1985, Page 26

Battered CSR looking up

NZPA-AAP Sydney A resurgence of profit growth has been predicted for CSR, Ltd, by the group’s general manager, Mr Bryan Kelman, ending a difficult period for the group. Earnings have been battered by low commodity prices and heavy foreign exchange losses.

The key to renewed profit growth will be CSR’s vast investment in a Cooper Basin oil and gas producer, Delhi Petroleum Pty, Ltd, which now controls 4064 megalitres of proven oil reserves and 9298 megalitres of proven gas liquids reserves.

Mr Kelman predicts Delhi will contribute to group profit in the next financial year for the first time since its acquisition in 1981. The profit contribution will follow the restructuring of CSR’s investment in Delhi, aimed at giving the diversified resource group early and unrestricted access to profits and cashflows from Delhi’s liquids production. Releasing the group’s 1983-84 annual report, Mr Kelman said CSR planned to bring Delhi on to the company’s balance sheet next financial year ~s part of the re-structuring, which would also include selling part of Delhi, currently wholly owned by CSR. “Provided we can repay a

reasonable part of Delhi’s debt and get finance charges down, it should make a contribution in the year 1986-87,” he said.

Mr Kelman said that, in round terms, Delhi made a $4O million to $4l million profit in 1984-85 before finance charges, but this had not come to CSR.

He predicted Delhi would double its earnings in the current year. This, together with reduced borrowings and the re-structuring of the Delhi investment, would result in the profit contribution.

CSR’s heavy exposure in the resource sector resulted in the net group operating profit plunging from a record $112.06 million in 198081 to $82.43 million the following year as a worldwide slump in commodity prices hit the group. In 1982-83 group earnings slipped further to $74.66 million before the effects of rationalisation began to take hold and a slow recovery in earnings began to take place. In the latest year to March 31 the net profit, before the write-off of $155 million in foreign exchange losses as an extraordinary item, grew only 0.6 per cent to $92.20 million from previous year earnings of $91.69 million.

Its acquisition of the wholly-owned oil and gas

producer has taken a substantial part of CSR’s investment capital, with returns on the investment being locked up in the Delhi Australia Fund — a trust used to finance Delhi’s purchase. The trust was used to arrange a SUS9SO million financing facility for Delhi’s acquisition, with SUS9OO million drawn, to date.

Mr Kelman said that, while the trust was initially the appropriate vehicle for CSR to make its investment through, this was no longer the case because of higher-than-expected exploration and development costs.

The increased costs were due to a high rate of discovery and an accelerated exploration programme which meant the accumulation of large tax losses against which future income could be written off. Without the re-structuring CSR would be denied access to profit until the tax losses had been used up as the trust was not permitted to make profit distributions until it paid tax. Mr Kelman said CSR had planned to sell off part of the Delhi interest soon after it was required, but this was “sidelined” because of buoyant conditions in the resource sector in the early 1980 s. The short-lived boom was hit by world recession, which has kept cominodity

prices at low levels and depressed CSR’s revenue from its sugar, coal, aluminium and iron ore interests.

As well, the group has suffered heavy exchange losses because of the sharp decline in the Australian dollar this year and its large borrowings in United States dollars. As well as the $155 million exchange loss for the 1984-85 year, it suffered an off-balance-sheet exchange loss of $385 million from the Delhi borrowings, of which $3lB million was unrealised. Mr Kelman said the changed circumstances surrounding the Delhi investment meant that CSR’s management began to reassess the Delhi investment and decided “it would be wise to reduce our exposure.”

“In October we decided to sell part of it and use part of the funds from that to bring it on to the balancesheet,” he said.

“At present there are five to six people looking at it seriously, but it will be two and a half to three months before I will be in a position to say anything.” The building division is CSR’s other star at present. The sugar, coal and aluminium, minerals and chemical divisions continue to suffer from depressed prices.